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Stocks sink as oil and gold fan inflation fears { April 2006 } Original Source Link: (May no longer be active)
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Stocks sink as oil and gold fan inflation fears
Thursday May 11, 7:13 PM EDT
By Emily Chasan
NEW YORK (Reuters) - U.S. stocks tumbled on Thursday, suffering their biggest drop in almost four months, as a jump in crude oil and gold prices stoked worries about inflation, consumer spending and more interest-rate hikes from the Federal Reserve.
Oil prices shot higher as outages at U.S. oil refineries triggered supply worries, a day after the Fed hinted that more interest-rate hikes might be needed to keep inflation at bay. For details, see . Gold hit a 26-year high.
Interest-rate-sensitive bank and insurance stocks were among the stocks leading the sell-off, after a disappointing earnings report from the world's largest insurer, American International Group Inc. (AIG). The S&P index of financial services stocks <.GSPF> slid 1.6 percent.
Technology shares fell sharply, as the sector has been buffeted lately by disappointing news, including a profit warning from computer maker Dell Inc. (DELL) and a disappointing revenue outlook from Cisco Systems Inc.
"The market as a whole is very weak because of the problems with Fed, and with higher commodities, and then on top of it all, the techs have some earnings issues," said Edgar Peters, chief investment officer and director of asset allocation at PanAgora Asset Management Inc.
The Dow Jones industrial average <.DJI> slid 141.92 points, or 1.22 percent, to end at 11,500.73. The Standard & Poor's 500 Index <.SPX> fell 16.93 points, or 1.28 percent, to finish at 1,305.92. The Nasdaq Composite Index <.IXIC> dropped 48.04 points, or 2.07 percent, to close at 2,272.70.
The Dow was pulled off a six-year peak as AIG, the world's largest insurance company, fell on a decline in first-quarter earnings. The stock was the biggest drag on the blue-chip Dow and the S&P 500, falling 5.1 percent, or $3.39, to $63.15 on the New York Stock Exchange. .
OIL, GOLD AND BOND YIELDS CLIMB
The surge in crude oil prices revived concern that higher energy costs would filter through to core inflation measures, increasing the chances of higher interest rates. Crude for June delivery rose $1.19 to settle at $73.32 per barrel.
A jump in metals prices added to inflationary worries. The price of spot gold climbed to $726 an ounce, its highest in 26 years.
The price of the benchmark 10-year U.S. Treasury note fell after an auction of new notes suggested weak foreign demand. The note's yield, which moves in the opposite direction of the price, climbed to a four-year high of 5.18 percent.
"We've been living in a bit of a fantasy world here, and there's obviously going to be a readjustment from time to time and we're seeing part of that," said Cummins Catherwood, managing director of Walnut Asset Management.
Small-cap stocks, which depend on cheaper lending rates for growth, also took a hit, further pressuring the Nasdaq. The Russell 2000 <.RUT>, a measure of small-company stock performance, fell 2.4 percent --its biggest drop since October 2005.
GM AND GOOGLE FALL
Shares of General Motors Corp. (GM), another Dow component, fell 2.9 percent, or 78 cents, to $25.81 amid worries about labor issues at its former auto parts unit Delphi Corp. (DPHIQ). GM ranked among the heaviest weights on the Dow average.
Weighing on the technology sector was a drop in the shares of Web search company Google Inc. (GOOG), which fell almost 4 percent, or $15.98, to $387 before its shareholder meeting.
Dell declined 1.5 percent, or 38 cents, to $24.51, while Cisco fell 3.4 percent, or 70 cents, to $20.05.
Trading was heavy on the New York Stock Exchange, where about 1.83 billion shares changed hands, above the 1.61 billion daily average for last year. On Nasdaq, about 2.46 billion shares traded, exceeding last year's daily average of 1.8 billion.
Declining shares beat advancers on both the NYSE and the Nasdaq by a ratio of about 4 to 1.
©2005 Reuters Limited.
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