Stocks mixed after inflation fears rekindled

Wall Street finished mixed Wednesday after the Federal Reserve reported slow but steady regional economic growth, deflating hopes for an interest rate cut that were already dampened by a larger-than-expected producer price index.

Investors’ rate worries trumped their optimism about strong earnings in the financial services sector, which earlier in the day helped nudge the Dow Jones industrials above 12,600 for the first time.

The Labor Department said before the market opened that the PPI, an indicator of inflation, rose by 0.9 percent in December — slower than in November, but faster than the market expected. Later, the Fed reported in its Beige Book of regional economic conditions that the economy is moderating at a steady pace. Investors believed the reports not only lowered the chances of a rate cut, but also that the Fed might raise rates to curb inflation, a move that could crimp consumer spending and hurt corporate profits.

“Inflation may be a worry, and that is job one at the Fed: to control inflation,” said Kim Caughey, equity research analyst at Fort Pitt Capital Group in Pittsburgh. Wednesday’s PPI figure “makes it more unlikely that easing will happen, and may make it likely for the Fed to raise rates.”

Also weighing on stocks was a rebound in oil prices and an outlook from Intel Corp., the world’s largest chip maker, that suggested profits in the technology sector might weaken this year.

The Dow fell 5.44, or 0.04 percent, to 12,577.15, after hitting a new trading high of 12,614.00 earlier in the session and after three straight days of record closes.

Broader stock indicators also slipped. The Standard & Poor’s 500 index declined 1.28, or 0.09 percent, to 1,430.62, and the technology-laden Nasdaq composite index fell 18.36, or 0.74 percent, to 2,479.42.

Although the indexes were lower, advancing issues narrowly outnumbered decliners on the New York Stock Exchange, where volume came to 2.72 billion shares, up from 2.65 billion Tuesday.

Bond prices edged lower on the PPI data and the Fed survey, though most Treasury market participants don’t anticipate any moves by the Fed until much later in the year. The yield on the benchmark 10-year Treasury note rose to 4.77 percent from 4.75 percent late Tuesday.

The dollar slipped against other major currencies, while gold prices rose.

Crude on the New York Mercantile Exchange rose $1.03 to settle at $52.24 a barrel Wednesday, rebounding off lows not seen since May 2005 and leaving investors wondering if energy prices have already bottomed out.

Before Wednesday’s PPI report, inflation concerns were calmed by a huge tumble in crude oil prices, which should lead to lower fuel bills for consumers. The markets are now bracing for the consumer price index, scheduled to be released Thursday.

The CPI should give investors a good clue to how energy prices are affecting inflation for the average American, said Janna Sampson, co-manager of the AmSouth Select Equity Fund and director of Portfolio Management at Oakbrook Investments.

Oil prices are still down more than 14 percent this year.

“Especially for the lower-end consumer, having this drop in energy prices should help to put a little bit more money back in their pockets so they can keep spending,” Sampson said.

The Russell 2000 index of smaller companies fell 2.71, or 0.34 percent, to 788.77.

Overseas, Japan’s Nikkei stock average rose 0.34 percent. Britain’s FTSE 100 was down 0.18 percent, Germany’s DAX index was down 0.23 percent, and France’s CAC-40 was down 0.53 percent.