updated 6/18/2004 9:33:05 AM ET 2004-06-18T13:33:05

Wall Street extended its slide Thursday as a pair of economic reports carried a conflicting message to investors: The growing economy is fueling a job market recovery, but also allowing inflation to rise.

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Anxiety over Iraq and interest rates has kept many investors on the sidelines for the past few weeks, and the latest data did little to lure buyers. Analysts say that until the end of the month, when the Federal Reserve takes action on rates and sovereignty is restored in Iraq, there will be little to drive the market forward.

“The market’s in a malaise,” said Larry Wachtel, market analyst with Wachovia Securities. “Once we get past the Fed meeting and the transfer of power in Iraq, and we get to second-quarter earnings, at least I’ll have something to hang my hat on. But until then, there’s nothing to spur me into action.”

The Dow Jones industrial average closed the day down 2.06 points, or 0.02 percent, at 10,377.52, while the broader Standard & Poor’s 500-stock index was down 1.51 points, or 0.1 percent, at 1,132.05. The tech-rich Nasdaq composite index slumped 14.56 points, or 0.7 percent, to 1,983.67.

The Labor Department issued two reports Thursday. The good news was that fewer people signed up for jobless benefits last week. The bad news was that wholesale prices rose in May at the fastest pace in 14 months.

The 0.8 percent rise in the Producer Price Index — which measures prices of goods before they reach store shelves — was largely due to rising costs of energy and food.

Excluding those factors, “core” wholesale prices rose by a more modest 0.3 percent in May, higher than the 0.2 percent economists were expecting. Investors saw the inflationary reading as something that might change the Fed’s approach to rates.

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“The strong reaction to this small difference between actual core PPI and what was expected shows how skittish people are about inflation right now,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “It could well be that as we get closer to the Fed meeting, this uncertainty ... will dissipate, and when the Fed actually makes its decision, it’ll be a yawn.”

Despite recent assurances from Fed Chairman Alan Greenspan that inflation is not a huge concern at its current levels, investors have grown increasingly worried about how it might affect interest rates. The market expects a 0.25 percent rate hike when the central bank meets June 29-30, but more bearish investors fear it could be as high as 0.50 percent.

The market is also uneasy about the June 30 hand-over of political power in Iraq. A sabotage attack that halted the nation’s oil production Wednesday and a pair of car bomb attacks Thursday raised further doubts about the likelihood of smooth transition.

Among the day’s decliners, circuit-board maker Jabil Circuit Inc. sank $3.56, or 13 percent, to $24.49, after predicting earnings for the quarter and the year would come in below analyst expectations.

Motor home manufacturer Winnebago Industries Inc. added $4.85, or 15 percent, to $36.85, after reporting earnings that surged past Wall Street forecasts.

Ford Motor Co. closed a penny higher at $15.64 after the company raised its earnings forecast for the quarter and the year. Ford cited strong performance at its financial services unit, which is seeing fewer credit losses than expected.

Advancers outnumbered declining shares by about 3 to 2 on the New York Stock Exchange. Volume was light. At the close, the Russell 2000 index, which tracks smaller company stocks, was down 0.50 point, or 0.1 percent, at 569.57.

Overseas, Japan’s Nikkei average finished 0.3 percent lower Thursday. In Europe, France’s CAC-40 rose 0.1 percent, Britain’s FTSE 100 added 0.05 percent and Germany’s DAX index lost 0.4 percent.

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