Wall Street stumbles as inflation heats up


Posted at Jun 17 2008 11:21 PM | Updated as of Jun 18 2008 07:21 AM

Agence France-Presse

NEW YORK - US stocks struggled after a modestly higher opening Tuesday as traders mulled data showing inflation pressures heating up, offsetting surprisingly good earnings from investment firm Goldman Sachs.

The Dow Jones Industrial Average reversed course and fell 16.28 points (0.13 percent) to 12,252.80 at 1500 GMT.

The Nasdaq composite rose 2.46 points (0.10 percent) to 2,477.24 and the broad-market Standard & Poor's 500 index a fractional 0.89 points (0.07 percent) to 1,361.03.

Oil prices in New York fell 92 cents to 133.69 dollars a barrel, setting a positive tone in early trade.

But the inflation news was less encouraging, showing a 1.4 percent leap in wholesale prices in May, led by energy and food costs. Core prices excluding food and energy components rose a tamer 0.2 percent.

Joel Naroff at Naroff Economic Advisors called the report "ugly."

"Just about everywhere prices are rising and they are doing so at a strong pace," he said.

"While the pathway from intermediate and crude goods price increases to consumer prices is quite unclear, it is never good news to see the extensive nature of price increases that were contained in this report."

The market also digested news that US housing starts slid 3.3 percent in May to the slowest pace in 17 years amid a prolonged slump in the real-estate sector.

Andrew Busch at BMO Capital Markets said the decline was expected and that the housing crisis may be showing signs of bottoming.

"Home building must fall to reduce inventory," he said. "We're now past the worst of the housing crisis and in the middle of the process of healing."

On the corporate front, Wall Street investment bank Goldman Sachs reported net profit dropped 11 percent in the past quarter to 2.087 billion dollars, in earnings well ahead of expectations in view of the troubled housing and credit markets.

"Apparently, Wall Street is alive and healing," said John Wilson at Morgan Keegan. "Goldman's report should help the financials."

Goldman Sachs shares added 0.91 percent to 183.74 dollars but the rest of the sector struggled.

Merrill Lynch fell 0.95 percent dollars to 38.59 and Morgan Stanley slipped 1.84 percent to 41.51.

Elsewhere, Best Buy fell 2.9 percent to 44.55 dollars after the electronics retailer reported a drop in quarterly earnings and predicted a "volatile" year.

Intel rose 0.13 percent to 22.89 dollars as the leading chipmaker announced plans to spin off key assets to create a company focused on renewable energy.

Electronic Arts slipped 1.3 percent to 46.45 dollars as the video game giant extended its offer for Take-Two Interactive, down 0.23 percent at 26.34

Bonds edged higher. The yield on the 10-year US Treasury bond dropped to 4.227 percent from 4.245 percent Monday and that on the 30-year bond eased to 4.775 percent against 4.780 percent. Bond yields and prices move in opposite directions.