updated 5/4/2006 7:58:30 AM ET 2006-05-04T11:58:30

Strong economic data pulled stocks slightly lower Wednesday, as Wall Street weighed the likelihood of more interest rate hikes amid high oil prices.

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Disappointment over blue chip Procter & Gamble Co.’s lower-than-forecast revenue also was a drag on the Dow Jones industrial average and countered solid earnings from Qwest Communications International Inc. and an improved outlook at Qualcomm Inc.

An unexpected jump in service sector growth extended the recent string of data showing the economy expanding at a swift pace, with a sharp upswing in factory orders also brightening that picture. However, the gains again had the market concerned about higher interest rates as the Federal Reserve continues its fight against inflation.

Russ Koesterich, senior portfolio manager at Barclays Global Investments, said the persistently high level of oil prices is putting pressure on consumer spending, and added that rising Treasury yields are also creating some headwind for stocks.

“The inflationary pressures are building, albeit slowly,” Koesterich said. “What we haven’t seen so far is commodities strength, particularly in energy, filter into core inflation. But the fear is that it’s going to happen soon.”

The Dow Jones industrial average finished the day down 16.17 points, or 0.14 percent, having closed Tuesday at its highest level since Jan. 19, 2000. The broader Standard & Poor’s 500-stock index closed Wednesday down 5.36 points, or 0.41 percent, while the Nasdaq composite index dropped 5.87 points, or 0.25 percent.

Oil and gasoline futures tumbled following a government report that gasoline demand has been flat over the past month, and that fuel supplies are growing as refineries step up output. But crude oil still lingered near record highs as the market fretted about political tension in Nigeria and Iran leading to potential supply cutoffs.

Ken McCarthy, chief economist for vFinance Investments, said bond weakness could persist as traders remain unsettled about Fed Chairman Ben Bernanke’s stance on inflation. But despite Wednesday’s decline, McCarthy said he is positive about the market’s underlying strength.

“The market’s fundamentals today are very supportive,” he said. “I think all it’s going to take is some positive news on inflation,” which could come in Thursday’s report on first-quarter worker productivity.

In economic news, the Institute for Supply Management’s April services index gained 2.5 points to 63, while economists forecast a 0.9 slide. The Commerce Department said factory orders bounced back to grow 4.2 percent in March , up from a 0.4 percent increase the month before; economists were looking for a 3.7 percent rise.

Consumer products maker P&G said strong sales and the acquisition of its Gillette razor business helped its profit swell 37 percent last quarter, but its revenue missed Wall Street targets. P&G fell $1.89 to $56.22.

Qwest posted a 54 percent jump in quarterly profit amid higher sales and better cost control. Qwest nonetheless fell 11 cents to $6.88.

Qualcomm raised its third-quarter outlook, citing stronger-than-expected orders for its communications chips. Qualcomm added 69 cents to $51.75.

Microsoft Corp. slid 84 cents to $23.17 following a Wall Street Journal report that the software giant may buy a stake in Internet company Yahoo Inc. , which gained 32 cents to $32.17.

(MSNBC is a Microsoft-NBC joint venture.)

Time Warner Inc.’s quarterly profit surged 60 percent , lifted by growth in its cable television business and from the sale of its book group. Those gains countered declines at AOL and Time Inc. Time Warner fell 20 cents to $17.22.

Warner Music Group Corp. rose 71 cents to $28 after saying it refused a $4.2 billion offer from rival label EMI Group PLC. The companies held merger talks in 2000 and again in 2003, but no deal surfaced either time.

Japan’s stock markets were closed for the rest of the week for national holidays. Britain’s FTSE 100 lost 1.19 percent, Germany’s DAX index plunged 1.36 percent and France’s CAC-40 was lower by 0.9 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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