Economic outlook
sends stocks lower

NEW YORK >> Stocks slumped yesterday as the Bush administration raised its inflation outlook and said the nation's economy would likely grow at a slower pace than forecast six months ago, an assessment that eclipsed positive corporate news and lower oil prices.

The White House expects the economy to continue growing at a 3.4 percent rate, a fraction less than the 3.5 percent pace predicted in December. In addition, rising energy prices prompted the administration to increase its inflation forecast for the year. The report was a further distraction for investors, who were already leaning toward the sidelines ahead of congressional testimony by Federal Reserve Chairman Alan Greenspan.

Still, analysts remained optimistic about the market's long-range outlook.

"I think everybody is already accustomed to the fact that the economy is not going to grow at the same fast clip it did a few years ago. This move, which is just a tenth of a point, is not a big surprise for most people, or we would've seen a bigger sell-off at the close," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. "The other concern was over the comment on inflation with oil prices; to that degree, everybody is trying to keep their finger on the pulse of inflationary news, and what it means for rates down the road."

The Dow Jones industrial average slid 6.21, or 0.06 percent, to 10,476.86, after spending most of the day in positive range.

The broader gauges also closed lower. The Standard & Poor's 500 index was down 2.59, or 0.22 percent, at 1,194.67. The Nasdaq composite index fell 6.98, or 0.3 percent, to 2,060.18.

The dollar saw a late-day rebound against the euro ahead of Greenspan's remarks to Congress today. Bonds fell slightly, with the yield on the 10-year note rising to 3.94 percent from 3.91 percent late Tuesday.

Crude oil skidded $1.22 to settle at $52.54 per barrel on the New York Mercantile Exchange, reversing gains made after a weekly government report on fuel inventories showed an unexpected 3 million-barrel draw on crude; analysts had expected a build. Gasoline inventories were also down, though supplies of distillate fuels rose.

Pricey oil and anxiety over the strength of the economy have kept stocks in a trading range recently, but the idea that the Fed might soon end the rate tightening cycle has brightened sentiment. A halt to the rate hikes would create a more stable business environment, which would bode well for the rest of 2005.