Stocks fall on inflation worries

Wall Street retreated sharply Friday as investors glumly absorbed a spike in oil prices and comments from two Federal Reserve officials that unexpected economic growth could prompt an interest rate hike.

Stocks had spent most of the session in positive territory after Thursday’s pullback made for fertile ground for bargain hunters.

The market also got a lift from analyst upgrades of the automobile sector, which sent Ford Motor Co. and General Motors Corp. higher.

But investors began to sell after St. Louis Fed President William Poole and Dallas Fed President Richard Fisher both warned rates will go higher if inflation doesn’t ebb. Wall Street has been looking for any clues about how central bankers are viewing the economy, and which way it might lead on interest rates this year.

Investors also digested a handful of earnings reports and watched the movements of crude oil, which crossed $60 per barrel for the first time since early January. MasterCard Inc. also weighed on the market after it warned 2007 margins might be weaker than they were last year.

“I do think that in order for this market to continue to rally, we’re going to need further confirmation of an economy that’s growing and the risks of inflation have abated,” said Peter Cardillo, chief market economist for Avalon Partners.

The Dow Jones industrial average fell 56.80, or 0.45 percent, to 12,580.83 after also pulling back on Thursday amid concerns about the housing market.

Broader stock indicators also fell. The Standard & Poor’s 500 index fell 10.25, or 0.71 percent, to 1,438.06, and the Nasdaq composite index was down 28.85, or 1.16 percent, at 2,459.82.

For the week, the Dow fell 0.57 percent; the Nasdaq dropped 0.65 percent; and the S&P declined 0.71 percent.

Bond prices fell sharply following speeches by the two Fed presidents; the yield on the benchmark 10-year Treasury note rose to 4.78 percent from 4.73 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 2.93 billion shares compared to 2.81 billion on Thursday.

The Russell 2000 index of smaller companies was down 9.28, or 1.14 percent, at 807.11.

Overseas, Japan’s Nikkei stock average closed up 1.23 percent. Britain’s FTSE 100 was closed up 0.57 percent, Germany’s DAX index rose 0.50 percent, and France’s CAC-40 finished up 0.48 percent.