The US stock market fell from 14-month highs and Treasurys slipped today after inflation rose faster than expected last month.
Stocks lost ground late in the day after General Electric forecast that revenue and earnings would be flat in 2010.
Major stocks indexes slid 0.5%, including the Dow Jones industrial average, which fell 49 points.
Trading was subdued as Federal Reserve policymakers gathered for a two-day meeting on interest rates.
The Fed is not expected to raise rates from their record low level, but the day’s economic reports brought reminders that the central bank could be forced to raise rates sooner than expected to keep inflation at bay.
The US government said wholesale prices jumped 1.8% last month, more than double the gain analysts expected. Core inflation, which excludes often-volatile food and energy costs, rose 0.5%, the biggest increase in more than a year.
Analysts said the increase in food and energy costs was probably a concern for Fed officials.
“They’re the twin pistons of inflation,” said Christopher Wolf, managing partner and co-chief investment officer at Cogo Wolf Asset Management in San Francisco.
Meanwhile, the Fed said industrial production rose 0.8% last month, the biggest gain since August.
The rise in production meant factories ran at a higher capacity. The portion of capacity being used remains below average, but if factories start seeing demand increase, prices could rise.
The reports put inflation on investors’ screens. If prices start to rise too quickly, the Fed could be forced to raise rates and risk choking off a nascent economic recovery.
Mr Wolf said: “There is a fair chance that the Fed is going to have to start putting some brakes on the economy.”
He added that he does not expect any immediate actions from policymakers.
Higher rates would help shore up the dollar, which rose today, but has fallen against other major currencies since stocks began rising in March. It could also trip up the US stock market as traders realign their holdings.
Stocks have slowed their nine-month advance in December as traders look to lock in gains for the year and seek clues about what might be able to drive the market in 2010.
The benchmark Standard & Poor’s 500 index has jumped 63.8% from a 12-year low in March on relief that the economy was stabilising.
Analysts say investors will need substantive signs that the economy is improving to extend the gains next year.
The Dow fell 49.05, or 0.5%, to 10,452.00.
The S&P 500 index fell 6.18, or 0.6%, to 1,107.93, and the Nasdaq composite index fell 11.05, or 0.5%, to 2,201.05.
The Dow and S&P 500 index closed yesterday at their highest levels since October 2008 as concerns eased about global debt problems.
Bond prices fell, pushing yields higher. The yield on the benchmark 10-year Treasury note rose to 3.60% from 3.56% late yesterday.
The dollar rose against other major currencies, while gold prices fell.
Crude oil rose 1.18 dollars to settle at 70.69 dollars per barrel on the New York Mercantile Exchange.
Investors turned cautious after GE’s forecast. The stock fell 20 cents, or 1.3%, to 15.75 dollars.
Meanwhile, Best Buy said its fourth-quarter profit margins will face pressure as shoppers look for less expensive items.
The comments came as the electronics retailer said its third-quarter earnings more than quadrupled. Best Buy fell 3.84 dollars, or 8.5%, to 41.53 dollars.
Three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 1.2 billion shares, compared with 1.1 billion yesterday.