US stocks fall

US stocks fell for the second day in a row today after warnings from several home builders raised investors’ concerns about an economic slowdown and comments about inflation from San Francisco Federal Reserve President Janet Yellen offered little comfort.

Wall Street has been trying to anticipate whether the Fed will keep interest rates stable or resume its rate hikes to keep inflation in check when it meets later this month.

Investors, already armed with recent economic data pointing to a housing slowdown, were forced to digest sour anecdotal evidence as well. Beazer Homes USA, Hovnanian Enterprises and KB Home warned that the home construction sector is facing difficulties, including cancellations and spikes in inventories.

The bad news only worsened this afternoon when news services quoted Yellen as saying the Fed should maintain its focus on containing inflation. She said the outlook regarding inflation remained “highly uncertain.”

Yellen also said data suggest both the housing market and the overall economy were cooling; the question for investors is how quickly is that occurring.

“It seems to me that the market is trading lower on the fears that the economy is perhaps having a hard landing versus a soft landing,” said Jim Herrick, head of equity trading at Robert W Baird & Co. He contends the mounting news about a housing slowdown has spooked investors because of the major role the robust housing market played in driving economic growth in recent years.

The Dow Jones industrial average fell 74.76, or 0.66%, to 11,331.44.

Broader stock indicators also declined. The Nasdaq fell 12.55, or 0.58%, to 2,155.29 after posting its largest single-day point drop in more than a month on Wednesday, and the Standard & Poor’s 500 index was off 6.24, or 0.48%, at 1,294.02.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.79% from 4.80% on Wednesday. The yield hit a five-month low of 4.73% last Friday. The dollar was mixed compared with most major currencies, while gold fell.

Wall Street is wrestling with the question of how the Federal Reserve will act as it seeks to hold back inflation. Many investors, who would ordinarily cheer falling oil prices, remain focused on whether the Fed will resume its course of rate hikes when it meets on September 20 and whether such a move would put the brakes on an already slowing economy and perhaps dent corporate profits.

Oil prices declined after inventory figures showed rising refining capacity was helping add to US petrol and distillate inventories. Crude prices, which had recently been above $70 a barrel, had already fallen as tensions over Iran’s nuclear ambitions eased and due to a lighter-than-expected hurricane season and news that a Gulf of Mexico platform is producing more than before it was struck by Hurricane Katrina.

Also, demand was expected to ease as the summer driving season ended. Crude settled down 18 cents at $67.32 a barrel.

The decline in the housing market, including falling sales and prices, has been the most glaring sign that the US economy has been slowing. One of Wall Street’s greatest concerns is that homebuilders and companies dependent on home sales are being hurt by the cooling market, so this week’s announcements prompted some investors to pull some money out of the market.

Herrick expects Wall Street will remain “jittery and data-focused” and likely to react to concerns about the housing market especially until it gets a clearer view of corporate earnings for the third quarter.

Beazer, which lowered its full-year profit forecast and pointed to falling sales and contract cancellations, declined 94 cents, or 2.42%, to 37.44.

KB Home was up 1 cent to 40.40 after being down earlier in the session. The company cut its 2006 earnings forecast. Hovnanian said yesterday its fiscal third-quarter profit fell 36% as costs rose and orders slowed, though its profit topped forecasts. It rose 1.61, or 6.32%, to 27.07.

Flow International fell 1.40, or 10.29%, to 12.20 after the maker of high-pressure waterjet products said it would delay reporting first-quarter results while it examined possible problems with how it accounted for revenue.

Declining issues outnumbered advancers by roughly 2 to 1 on the New York Stock Exchange, where volume totalled 1.48 billion shares, compared with 1.45 billion traded Wednesday.

The Russell 2000 index of smaller companies was down 5.57, or 0.78%, at 706.47.