US stocks fall amid inflation fears

Stocks in the US retreated from lofty heights today after a European Central Bank official pointed to rising price risks and a major Wall Street bank lowered its sales expectations for Chinese internet company Baidu.com.

The news caused traders to take profits, particularly in the technology sector, from big gains made earlier in the session. The Dow Jones industrial average and the Standard & Poor’s 500 index fell from record levels that had been reached after Wal-Mart Stores Inc lifted its profit forecast.

The market turned in the afternoon after ECB governing council member Axel Weber said rising inflation in the euro zone may require additional policy action, according to Dow Jones Newswires. The comments appeared to raise concerns on Wall Street that European growth could slow and that in the US inflation could prevent the Federal Reserve from making another rate cut.

Many investors have been betting on another rate reduction from US policy makers, who lowered the target federal funds rate by half a percentage point on September 18 in response to a tightening in the credit markets.

Wall Street’s mood was also dampened when JPMorgan Chase & Co lowered its revenue expectations for Baidu.com Inc, said Kelmoore Strategy Funds portfolio manager Matt Kelmon. That hurt technology companies, which had been rising strongly in recent days.

“Stocks have come a long way really quickly,” Mr Kelmon said. “The stocks that have done the best are getting hammered right now.”

The Dow sank 63.57, or 0.45%, to 14,015.12. Earlier in the session, the blue-chip index had soared to a new trading high of 14,198.10.

Broader stock indicators also turned lower after giving back robust gains. The Standard & Poor’s 500 index fell 8.06, or 0.52%, to 1,554.41. It had reached a new trading high of 1,576.09.

The Nasdaq composite index, which has touched nearly seven-year highs in recent sessions, fell 39.41, or 1.40%, to 2,772.20.

The technology-dominated Nasdaq was hurt by Baidu.com, which tumbled 34.39 dollars, or 10%, to 308.78 dollars. Apple Inc, Oracle Corp, Amazon.com, Yahoo Inc and Intel Corp also fell.

Bonds pared back their steep losses after stocks fell. The yield on the benchmark 10-year Treasury note, which moves inversely to the price, rose to 4.66% from 4.65% late yesterday.

Spiking gold and oil prices heightened some investors’ worries about inflation. Light, sweet crude rose 1.78 dollars to 83.08 dollars a barrel on the New York Mercantile Exchange after the US government reported an unexpected drop in crude oil inventories and a surprise increase in refinery activity.

At this point, the market is split on whether the Fed will lower rates.

“You kind of have to wait and see,” said Stephen Carl, principal and head of equity trading at The Williams Capital Group. He noted that some data - particularly weak retail sales reports that came out this morning – show that the economy could be in need of further easing. “The potential is definitely there.”

Other reports have shown economic strength, however.

The US trade deficit fell to its lowest level in seven months – a much better reading than Wall Street expected – amid record sales of American products. The Commerce Department said the deficit declined to 57.6 billion dollars in August, down 2.4% from the July imbalance. Exports rose 0.4% to a record 138.3 billion dollars, while imports dropped 0.4% to 195.9 billion dollars.

A weakening dollar makes US exports more competitive abroad. On Thursday, the dollar fell versus the euro but rose against the pound and the yen.

Although the stock market’s pullback looked dramatic, market watchers said it was to be expected given how far stocks have risen. Less than two months ago, the Dow was below 13,000. Whether the blue-chip index treads further above 14,000 will depend on upcoming third-quarter profit results, and if they indicate US corporate health going forward.

Wal-Mart, the world’s largest retailer, raised its third-quarter profit forecast even after reporting its same-store sales, or sales at stores open at least a year, rose a weaker-than-expected 1.4% in September.

Wal-Mart, one of the 30 stocks that make up the Dow industrials, jumped 1.31 dollars, or 2.9%, to 46.90 dollars.

The biggest gainer in the Dow was General Motors Corp, which rose 1.86 dollars, or 4.9%, to 39.99 dollars after union members ratified a new contract with the car maker.

Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where volume came to 1.52 billion shares.

The Russell 2000 index of smaller companies fell 10.21, or 1.21%, to 834.98.

Overseas, Japan’s Nikkei stock average closed up 1.64% after a rating agency upgraded the country’s debt. Stocks in Europe also rose. Britain’s FTSE 100 rose 1.38%, Germany’s DAX index advanced 0.59%, and France’s CAC-40 rose 0.42%.