updated 11/17/2004 9:39:50 AM ET 2004-11-17T14:39:50

Wall Street closed Tuesday with a modest loss, as investors took a breather from three weeks of gains for stock prices following a government report that suggested inflation pressures might be creeping back into the U.S. economy.

Major Market Indices

Shortly before Tuesday’s open, the Labor Department said its Producer Price Index, or PPI, which measures costs of goods before they reach store shelves, jumped 1.7 percent in October after a more modest rise in September, recording the largest month-over-month increase since early 1990. A surge in food and energy costs was responsible for the sharp rise.

The PPI data led some on Wall Street to worry that a recent surge in crude oil prices is finally catching up to the overall U.S. economy, and that the PPI’s sharp increase would either eat into fourth quarter profits or be passed on to consumers, possibly spurring inflation. Excluding energy and food costs, “core” PPI climbed a modest 0.3 percent.

Brian Belski, market strategist at Piper Jaffray, said the PPI number wasn’t too surprising, as energy prices were widely expected to have impact wholesale prices. “Given that we’ve had a very strong move up in stock prices over the past few weeks, the fact that we’re taking a rest here today isn’t a bad thing,” he said.

Arthur Cashin, a managing director at UBS, said the market is overbought after a three week run, and so might be consolidating a little. He also said traders are worried by a handful of issues, including the PPI data and signs of economic shakiness in Europe.

“We may be getting to stall speed, and if the U.S. dollar continues to fall there may be some concern about the global economy,” Cashin told CNBC from the floor of the New York Stock Exchange. “This is a goldilocks environment and you want things to be just right, so people are a little bit concerned.”

The Dow Jones industrial average finished with a 62.59-point loss, or down 0.6 percent, having closed Monday’s session at a 7-month high. The broader Standard & Poor’s 500-stock index fell 8.38 points, or 0.7 percent, while the technology-rich Nasdaq composite index lost 15.47 points, or 0.7 percent.

Stock indices have risen steadily since late October, fueled by a drop in crude oil prices from record highs and President George W. Bush’s re-election in early November. Video: No inflation alarm

Shares of retailers fell, weighed down by Wal-Mart Stores, which reported that its quarterly sales rose just 9.7 percent — its slowest growth rate in more than 18 months. The company also posted a higher quarterly profit that matched analysts’ estimates and raised its full-year profit outlook. Shares of Wal-Mart fell 1.4 percent to $56.89.

Home Depot reported a 15 percent rise in third-quarter profit that topped analysts’ forecasts and raised its full-year profit growth estimate. The home improvement retailer’s share price fell 1.8 percent $43.

Online search engine Google’s stock price slipped 6.7 percent to $172.55 amid the expiration of a restriction period Tuesday allows the Web search leader’s employees and early investors to sell 39 million shares.

Regulatory and accounting troubles continued to plague mortgage giant Fannie Mae, which said late Monday that its outside auditor refused to certify the company’s third-quarter earnings report. Fannie Mae’s stock price slid 1.1 percent to $69.40.

Oil prices steadied, with U.S. light crude settling down 76 cents at $46.11 a barrel and down over $9 from a record $55.67 seen in late October, as fuel stockpiles in the United States have increased and potential threats to global supplies have eased.

The sharp jump in the PPI fueled concerns Tuesday that the Federal Reserve may raise interest rates more quickly, a move seen as negative for stocks since it raises borrowing costs for companies and consumers.

The government is scheduled to report on the U.S. consumer price index for October on Wednesday. The Fed’s policy-making body, the Federal Open Market Committee, next meets on Dec. 14. Higher interest rates can hurt stock prices by slowing economic and corporate earnings growth, and also by making bond more attractive investments than equities.

Overseas, Japan’s Nikkei stock average fell 0.6 percent. In Europe, France’s CAC-40 fell 0.7 percent, Britain’s FTSE 100 also slipped 0.7 percent and Germany’s DAX index lost 0.4 percent.

Reuters and the Associated Press contributed to this report.


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