Jitters send stocks south

Nasdaq loses 2.06%

Dow drops 1.63%

S&P 500 is off 1.58%

Markets Yesterday's Close


NEW YORK -- Worries about inflation and another rise in interest rates prompted a sell-off on Wall Street yesterday the latest dip in a market that has experienced a high degree of volatility in the last few weeks.

"The main thing that ails the stock market is uncertainty about the Fed and inflation," said Ethan Harris, chief U.S. economist for Lehman Brothers. "I think the stock market is beginning to figure out that inflation is becoming a danger. Where they pretty much ignored inflation for a long time, now it's becoming an issue."

The Dow Jones industrial average dropped 184.18 points, or 1.63 percent, to 11,094.43. All 30 Dow components fell, with Caterpillar, General Motors and Merck leading the way. The Standard & Poor's 500-stock index declined 20.28 points, or 1.58 percent, to 1,259.84. The Nasdaq fell 45.63 points, or 2.06 percent, to 2,164.74.

Overseas markets were rattled as well. The leading market indexes in Britain, France and Germany all ended the day down more than 2 percent, with much of their losses coming after stock trading began in New York. Japan's Nikkei stock average lost ground earlier, and the markets in Brazil and Mexico fell, too.

Investors had little positive economic news to look to in a day of generally downbeat market activity. Oil prices rose and the dollar fell against the euro in its biggest drop in more than a month.

Adding to the anxiety on Wall Street yesterday, Michael H. Moskow, president of the Federal Reserve Bank of Chicago, expressed concerns in an interview that inflation was running a little too high. His remarks, broadcast on CNBC, raised fears that the central bank could raise interest rates for a 17th consecutive time when it meets June 28-29.

One issue distressing investors, analysts said, is that they can no longer predict with any degree of certainty what the Fed will do.

"The bottom line is, investors don't like uncertainty," said Michael Pond, an interest rate strategist with Barclays Capital. "You're entering into the first meeting in a year and a half where it's not clear whether the Fed is going to raise interest rates. But the Fed doesn't know what they're going to do, and investors should be concerned about that."

Analysts also point out that market downturns are symptomatic of an economy that is cooling.

"Until the stock market can feel comfortable that this is going to be a modest inflation pickup," Harris of Lehman said, "investors are going to be worried. So it's understandable that there's some re-pricing going on."

Just three weeks ago, the Dow looked as if it might break its record high. Since then, stocks have been moving at a volatile clip, dropping sharply, then rising, but ultimately erasing the gains made earlier in the month. The Dow is now down 4.7 percent from its closing high May 10.

The fact that the Dow had been approaching a high-water mark might have scared some investors into cashing out early.

William E. Rhodes, chief investment strategist with Rhodes Analytics, said the recent decline could be chalked up to the market correcting itself. "It certainly is a correction, and a correction that is timed against reaching that peak," Rhodes said.

"It's natural to sit back, be cautionary and say, `What are the things that can go wrong?' You have to make that count as you're getting ready to purchase that next share of stock."

The Sun-Bloomberg index of the top stocks in Maryland tumbled 4.58 to 334.50 yesterday.

Legg Mason Inc. shed $3.72 to $95.23 and Black & Decker Corp. dropped $2.56 to $85.90.

Two of the nation's largest companies, Wal-Mart and General Motors, helped to drag down the Dow.

Shares of Wal-Mart dropped $1.35, or almost 3 percent, to $48.30, after the retailer said its May sales growth would be at the low end of its expectations.

Shares of GM rose last week as two Wall Street analysts raised their ratings on the automaker to "buy" and news media reports said GM's worker buyout program was proving successful. But yesterday, GM's stock fell $1.51, or 5 percent, to $26.57, after Deutsche Bank AG cut its rating to "sell" on concerns about valuation and moderating vehicle sales.

Bloomberg News contributed to this article.

Stock of interest

Engelhard Corp.

Shares rose 25 cents to $38.93 after the inventor of the catalytic converter accepted a sweetened $5 billion takeover offer from chemical maker BASF AG, ending five months of talks.

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