updated 3/14/2005 8:12:53 AM ET 2005-03-14T13:12:53

Investors preoccupied with inflation extended Wall Street’s recent decline Friday, selling stocks sharply lower in response to news of a ballooning U.S. trade deficit. The drop, which came in spite of a bullish sales outlook from Intel Corp., left the market substantially lower for the week.

Major Market Indices

Wall Street was unnerved as the Commerce Department reported that the trade deficit widened to $58.3 billion in January, the second highest level after November’s record reading. While the nation’s exports rose to record highs, imports rose even faster, leading investors to fear a loss of confidence in the dollar overseas. The dollar fell against most major currencies after the news came out.

The trade deficit sapped any momentum the market may have gained from Intel, a Dow Jones industrial, which reported late Thursday that sales for the current quarter would be at the higher end of previous forecasts. That bodes well for the tech sector and the overall economy, but inflation fears overshadowed the announcement.

“The economy is fairly good. Consumers are spending money. There’s strength there,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “But with this trade deficit thing, the dollar, and oil prices where they are, the market’s going to need a little more convincing.”

The Dow Jones industrial average was down 77.15 points, or 0.7 percent, at Friday’s close, while the broader Standard & Poor’s 500-stock index was off 9.17 points, or 0.8 percent. The tech-rich Nasdaq composite index slid 18.12 points, or 0.9 percent.

For the week, the Dow index fell 1.5 percent, the S&P 500 shed 1.4 percent and the Nasdaq Composite gave up 1.8 percent.

Inflation worries dominated Wall Street this week, with higher oil prices prompting investors to cash in profits after the previous week’s strong gains. After the Dow came within 16 points of 11,000 on Monday, it fell more than 200 points by Friday’s close.

The dollar slipped lower on news of the widening trade gap, giving back earlier gains against the euro and Japanese yen. Bonds also fell as investors worried that the deficit and historically low dollar could still trigger inflation. The yield on the 10-year Treasury note rose to 4.55 percent, up from Thursday’s close of 4.47 percent.

Oil futures spiked as the dollar slipped through the morning, climbing back above $54 per barrel. A barrel of light crude settled at $54.43, up 89 cents, on the New York Mercantile Exchange.

“Oil prices are still hovering around their highs, the dollar continues to move lower — those are two factors that the market isn’t buying right now,” said Peter Cardillo, chief strategist and senior vice president at S.W. Bach & Co. “So as we’ve seen with Intel, any good news we happen to get will be discounted while we figure out inflation.”

Consumer confidence is on the rise, according to the AP-Ipsos consumer confidence index, which jumped in early March by the largest amount in seven months. A better-than-expected job creation report was credited for the 6.4 percent rise.

After early gains, tech stocks fell along with the rest of the market despite Intel’s bullish sales update. Intel slid 65 cents to $24.20, while rivals Advanced Micro Devices Inc. fell 63 cents to $16.39 and National Semiconductor Corp., which issued a positive earnings report during Thursday’s session, lost 30 cents to $20.82.

Kmart Holding Corp. surged $14.89, or 13.3 percent, to $127, reaching a new high, after analysts at UBS issued a bullish report on the discount retailer and its merger partner, Sears, Roebuck and Co. added $4.20 to $57.56 on the news.

Auto parts manufacturer Visteon Corp. climbed 64 cents, or 10.2 percent, to $6.90 after Ford Motor Co. agreed to financial concessions to help its former subsidary improve its bottom line while still ensuring a steady supply of components. Ford was up 2 cents at $12.39.

Overseas, Japan’s Nikkei stock average rose 0.5 percent. In Europe, Britain’s FTSE 100 closed up 0.4 percent, France’s CAC-40 gained 0.3 percent for the session and Germany’s DAX climbed 0.5 percent.

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

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