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Inflation Fear Takes Shares Down
NY Times/AP
May 13, 2006

Stocks endured a second day of steep losses yesterday as the dollar weakened and bond prices fell after data showing higher import prices fueled the market's inflation worries. The major indexes declined sharply for the week.

A rebound in prices for imported goods further rattled investors already worried about interest rates. Although import prices were flat excluding oil, that did little to soothe concerns about energy costs lifting prices elsewhere.

Plunging consumer confidence also reinforced beliefs that high gasoline prices at the pumps could choke consumer spending. Wall Street, meanwhile, weighed the importance of an unexpected decline in the trade deficit and cooling oil prices.

Yesterday's decline in equity markets built on steep losses the previous day, when surging commodities prices compounded anxiety that the Federal Reserve could continue its two-year streak of interest rate increases. And next week's reports on wholesale and consumer prices could prove troublesome for the inflation picture.

"With commodities prices reaching new highs, people are saying maybe global growth is stronger than anticipated," said Brian Gendreau, investment strategist for ING Investment Management. The Dow lost 119.74 points, or 1.04 percent, to 11,380.99. The Dow sank 142 points in Thursday's session, its biggest single-day drop since falling 213 points on Jan. 19.

Broader stock indicators also retreated. The Standard & Poor's 500-stock index fell 14.68 points, or 1.12 percent, to 1,291.24, and the Nasdaq composite index dropped 28.92 points, or 1.27 percent, to 2,243.78.

Lowered forecasts for global oil demand from the International Energy Agency eased pressure on the energy market. A barrel of light crude oil lost $1.28, to $72.04, on the New York Mercantile Exchange.

The major indexes closed substantially lower for the week, with troubling outlooks from Dell and Cisco Systems propelling the decline of the Nasdaq. For the week, the Dow skidded 1.7 percent and the S.& P. 500 slumped 2.61 percent. The Nasdaq plunged 4.22 percent, erasing much of its gains so far this year.

Volatile trading is expected to continue next week as investors draw clues about the economy and inflation from data on home building and overall prices.

In economic news, the Labor Department said prices for goods shipped to the United States swelled 2.1 percent last month after declining 0.2 percent the previous month, but import prices without energy were unchanged. Export prices rose 0.6 after gaining 0.2 percent in March.

The Commerce Department said the trade deficit narrowed by $3.6 billion, to $62 billion; economists had predicted a $1.4 billion increase.

The University of Michigan's consumer sentiment index for May plummeted 8.4 points, to 79. Economists were looking for the index to drop just 1.4 points, to 86.

Expedia plunged $5.15, or 26 percent, to $14.51, after its first-quarter profit declined and fell far short of Wall Street expectations. Expedia said higher costs outpaced a modest jump in revenue.

The electronics retailer Best Buy is paying $180 million to acquire a majority stake in Jiangsu Five Star Appliance, an appliance and electronics seller in China. Best Buy tumbled $1.22, to $52.60.

General Motors was one of a few gainers among the Dow Jones industrials, adding 28 cents, to $26.09, after KeyBanc Capital Markets upgraded G.M. to a buy on the opinion that negotiations with its union would be successful.

Bonds continued sliding. The 10-year Treasury note fell 18/32, to 99 15/32. The yield, which moves in the opposite direction from the price, rose to 5.19 percent, from 5.15 percent late Thursday. The interest rate worries also weighed on the dollar, which fell further against the yen. Gold prices pulled back from fresh 25-year highs.

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