updated 4/4/2005 8:23:06 AM ET 2005-04-04T12:23:06

Strong growth in the services sector and record high oil prices sent the stock market sharply lower Friday on renewed inflation fears. A weaker-than-expected job creation report, which initially gave investors hope that economic growth would remain manageable, was ultimately ignored, and stocks finished mostly lower for the fourth straight week.

Major Market Indices

The early release of the Institute for Supply Management’s service sector index, which wasn’t due until Tuesday, showed greater-than-expected growth in non-manufacturing businesses — and a sharp jump in consumer prices. That worried skittish investors that inflation might yet take hold and prompt the Federal Reserve to push for potentially jarring rate hikes.

The announcement stole momentum from the Labor Department’s jobs report, usually the most important piece of economic data every month. Only 110,000 new jobs were created in March — half of what economists had expected. February’s figure also was revised lower by 19,000 jobs. The nation’s unemployment rate fell to 5.2 percent from 5.4 percent in February.

“We rallied nicely on the jobs report, but then we got a conflicting message from the ISM report. That report doesn’t usually carry as much weight, but it hit the bond market hard, and that moved to stocks pretty quickly,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland. “In a market where we’re really this nervous to begin with, it only takes a little bit to turn things around.”

The Dow Jones industrial average was down 99.46 points, or 1 percent, by Friday’s close, while the broader Standard & Poor’s 500-stock index was down 7.67 points, or 0.7 percent. The Nasdaq composite index dropped 14.42 points, or 0.7 percent.

Continuing fears of inflation, prompted by higher oil prices and a growing economy, plagued the markets during the week, as they have done for most of March, robbing momentum from a strong session on Wednesday.

The market’s three major stock indexes closed the week mixed. The Dow lost 0.4 percent, the Nasdaq Composite fell 0.3 percent and the S&P 500 index posted a gain of 0.1 percent.

The bond market managed its fourth straight session of gains even after falling initially on the ISM services report. The yield on the 10-year Treasury note fell to 4.45 percent from 4.48 percent on Thursday. The dollar rose against most major currencies, while gold prices fell.

A sharp jump in oil prices also sapped investors’ confidence. After reaching an intra-day record of $57.70, a barrel of light crude settled at a closing record of $57.27, up $1.87, on the New York Mercantile Exchange.

“The 800-pound gorilla in the middle of the room is the lift in oil prices,” said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, Calif. “As prices go up in oil and energy, it’s a direct tax on the economy without any corresponding benefit, with the exception of the earnings of energy companies.”

The ISM services index — mistakenly released alongside ISM’s manufacturing report — came in at 63.1 for March, far more than the 59 reading expected on Wall Street and sharply higher from February’s 59.8 reading. With the service sector such a strong part of the economy, and another part of the report saying that service providers are charging higher prices, investors feared the growth could trigger inflation.

The ISM manufacturing index, which was initially thought to be much higher due to a snafu in press releases issued by ISM, pointed to modest activity. The index, which measures the strength of industrial activity, came in at 55.2, slightly better than the 54.9 reading economists expected but still down from 55.3 in February.

Qwest Communications International Inc. slipped 6 cents to $3.64 as the telecommunications company made yet another attempt to break up Verizon Communications Inc.’s takeover of MCI Inc. Qwest is now offering $8.94 billion for MCI, far more than the $7.51 billion in the Verizon offer, which MCI accepted earlier in the week. MCI added 39 cents to $25.29, while Verizon was down 31 cents at $35.19.

Regulators are expanding their probe into insurer American International Group Inc.’s accounting and operations, according to The Wall Street Journal, looking at a wider swath of the company’s insurance transactions. The Journal also reported that former Chairman Maurice “Hank” Greenberg stepped down after the New York attorney general threatened a criminal indictment against the company if Greenberg were still in charge. AIG fell $4.46 to $50.95.

Taser International Inc. lost $1.58, or 13.2 percent, to $10.42 after the stun-gun maker warned of a revenue shortfall for the quarter due to negative publicity surrounding risks associated with its non-lethal weapons. The company said it is launching an education campaign.

Profits at Best Buy Co. Inc. rose 22 percent for the fourth quarter as higher sales of low-margin electronics made up for declining revenues in other areas. The company’s first-quarter and full-year profit outlooks, however, were below analysts’ current estimates, and Best Buy dropped $3.41 to $50.60.

Overseas, Japan’s Nikkei average rose 0.5 percent. Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index gained 0.6 percent and France’s CAC-40 climbed 0.3 percent.

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

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