Falling U.S. dollar
spooks investors

NEW YORK » Stocks finished mixed in a volatile session yesterday as investors worried that the continued fall of the U.S. dollar would spur inflation and hurt the overall economy. The concerns overshadowed a decent start to the holiday shopping season.

With the Federal Reserve meeting Dec. 14, many investors felt that the weakening dollar -- which failed to gain much ground against other currencies yesterday -- would lead to substantially higher interest rates as the threat of inflation grows.

Wall Street also bid retail stocks lower despite improved sales for most retailers over the Thanksgiving weekend. A warning from Wal-Mart Stores Inc., which said its sales were lower than expected, led to selling across the sector. A strong showing in sales of electronics kept tech stocks slightly higher for the session.

"What we're seeing here is investors realizing that the falling dollar could prompt inflation, and that could prompt a much stronger Federal Reserve response," said Peter Cardillo, chief strategist, senior vice president and market analyst with S.W. Bach & Co.

The Dow Jones industrial average fell 46.33, or 0.44 percent, to 10,475.90. The Dow had been down more than 105 points earlier in the session.

Broader indexes were mixed. The Standard & Poor's 500 index was down 4.08, or 0.35 percent, at 1,178.57, and the Nasdaq composite index gained 4.90, or 0.23 percent, to 2,106.87.

Even stabilizing crude oil futures failed to assuage investors' concerns. A barrel of light crude settled at $49.76, up 32 cents, on the New York Mercantile Exchange.

Instead, Wall Street was focused on the dollar, prompted by Fed Chairman Alan Greenspan's warning earlier this month that foreign investors could reduce their U.S. bond holdings should the dollar remain weak. Greenspan blamed a spiraling trade deficit and continued federal budget deficits for international investors' reactions.

Some analysts, however, thought Greenspan's warning, instead of helping matters, prompted increased speculation in both currency and bond markets, with the dollar falling to record lows against the euro last week. That, in turn, spooked stock investors, said Joe Battipaglia, chief investment officer at Ryan Beck & Co.

"His statement didn't help whatsoever," Battipaglia said.

The selloff on Wall Street also was prompted by a drop in the government bond market, where there were fears of foreign bondholders abandoning Treasury bills as the dollar continues to weaken.