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News >  Business

Stocks lower on earnings, rate worries

Associated Press

Stocks fell sharply Tuesday as a number of companies warned of profit shortfalls and higher costs, some of which could be passed along to consumers. Concerns over interest rates also pressured stocks after a Federal Reserve official signaled more increases for the future.

The markets were higher in the early part of the session as investors welcomed a decline in crude oil futures, prompted by news that the government could release heating oil reserves to help combat higher heating costs as winter approaches. A barrel of light crude settled at $63.90, down $1.57, on the New York Mercantile Exchange.

Yet the specter of inflation quickly overcame any advances. Procter & Gamble Co.’s stock was downgraded due to higher raw material prices, and Clorox Co. blamed high energy costs for an expected earnings shortfall and increases in the retail prices of its products, which could exacerbate Wall Street’s inflation fears.

Inflation concerns were heightened as Dallas Federal Reserve Bank President Robert Fisher said inflation was nearing the high end of the Fed’s comfort zone — a clear signal that the Fed will continue raising interest rates.

The Dow Jones industrial average fell 94.37, or 0.9 percent, to 10,441.11.

Broader stock indicators also moved substantially lower. The Standard & Poor’s 500 index lost 12.23, or 1 percent, to 1,214.47, and the Nasdaq composite index dropped 16.07, or 0.75 percent, to 2,139.36.

Bonds edged higher after the previous session’s sell-off, with the yield on the 10-year Treasury note falling to 4.38 percent from 4.39 percent late Monday. The dollar was mostly lower against other major currencies, while gold prices were flat.

Energy stocks, which have been a market leader for much of the year, led decliners as investors, particularly hedge funds, moved out of oil stocks and into the healthcare and technology sectors.

“You’re seeing the fast money shift around a bit, and short-term, that’s good for stocks,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “Longer-term, you have to consider that, at some point, energy prices are going to catch up to the economy and the market.”

The latest Commerce Department report on factory orders failed to prop up stocks, even though August factory orders surged 2.5 percent in August, compared to a 2.5 percent drop in orders in July. Those figures did not include the impact of hurricanes Rita and Katrina and the subsequent jumps in energy and raw material costs.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 1.74 billion shares, compared with 1.55 billion traded on Monday.

The Russell 2000 index of smaller companies fell 6.71, or 1 percent, to 663.84.

Overseas, Japan’s Nikkei stock average rose 1.58 percent. In Europe, Britain’s FTSE 100 closed down 0.13 percent, France’s CAC-40 rose 0.6 percent for the session, and Germany’s DAX index gained 1.1 percent.

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