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Dow Takes Late Hit, Then Rebounds

Associated Press

Inflation jitters resurfaced Friday, quickly sucker-punching a stock market treated to nothing but good news of late. But stocks suffered only modest losses as investors remained confident enough about the economy to use the ensuing selloff as just another buying opportunity.

The Dow Jones industrial average tumbled nearly 120 points Friday morning and remained sharply lower most of the day, but rallied back over the final hour, closing with a loss of just 28.57 at 8,194.04. Even with the drop, the Dow gained 80.60 for the week and is still up 27 percent for the year.

Broader-stock indicators also repaired much of the early damage inflicted after the unsettling report on July manufacturing activity by the National Association of Purchasing Management.

Computer-related shares withstood much of the day’s selling pressure, and the late rebound pushed the technology-heavy Nasdaq composite index into positive territory for its third straight record close.

The monthly survey of factory executives by the NAPM said manufacturing activity accelerated to the highest level in almost three years during July, undermining the widespread belief that economic growth will remain moderate enough to keep inflation in check.

In a more surprising development, the report also revealed a big jump in prices paid for manufacturing supplies.

Bonds, which pay a fixed rate of return that’s more attractive when inflation is tame, gave back a big chunk of this week’s gains after the purchasing managers report.

As bond prices fell, the yield on the 30-year Treasury - a key influence on borrowing costs for companies and consumers - surged to 6.45 percent after easing to a 17-month low of 6.29 percent on Thursday.

In an unusual twist, bond traders were hardly rattled by an earlier report Friday that the economy added 316,000 jobs in July, about 100,000 more than expected.

Predictably, the Dow’s biggest decliners included its financial services components, which had rallied in recent days as the interest rate environment grew more favorable. J.P. Morgan fell 1-3/8 to 114-1/2, and Travelers Group fell 1 to 70-15/16, but both issues had been sharply lower before the late rebound.

But reflecting the strength suggested by the day’s economic news, heavy industrial names helped cushion the Dow’s fall. Caterpillar rose 2-15/16 to 58-15/16 and International Paper rose 1-5/8 to 57-3/4.

The Standard & Poor’s 500-stock list fell 7.15 to 947.14, the NYSE composite index fell 3.52 to 490.98, and the American Stock Exchange composite index fell 2.11 to 644.19. All three measures had closed at record highs on Tuesday, Wednesday and Thursday.

The Nasdaq composite index rose 0.52 to 1,594.33, padding Thursday’s record close with help from Intel, up 1-13/16 to 93-5/8, and Applied Materials, up 4-21/32 to 96-17/32.

Overseas, Tokyo’s Nikkei stock average fell 2.6 percent, Frankfurt’s DAX index fell 0.7 percent and London’s FT-SE 100 fell 0.2 percent.

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