msnbc.com news services
updated 4/21/2005 7:11:01 AM ET 2005-04-21T11:11:01

A late-session sell-off yanked the Dow Jones industrial average to a new 2005 low Wednesday, as a jump in consumer prices in March fanned inflation fears and overshadowed better-than-expected earnings from companies such as Caterpillar Inc. and Intel Corp.

Major Market Indices

The Dow Jones industrials closed the day down 115.05 points, or 1.1 percent, and perilously close to the psychologically important 10,000 level. The broader Standard & Poor’s 500-stock index fell 15.28 points, or 1.3 percent, while the technology-rich Nasdaq composite index tumbled 18.60 points, or 1 percent.

“We have a market here that can’t hold on to good news because of concerns about the economy,” Art Hogan, chief market strategist at Jefferies & Co., told CNBC. “It’s really difficult to have the juxtaposition of terrific news from corporate America and slower economic data, and the focus has been on these economic data.”

With 1,200 companies releasing earnings this week, investors have plenty of corporate news to sift through, but the state of the economy remains in the spotlight.

Stocks sank after the mid-afternoon release of the Federal Reserve’s “Beige Book” survey , which reported expansion of business activity from late February to early April, but “uneven progress” in some parts of the country, and higher inflation. Analysts said the day’s trading underscores the level of fear on Wall Street following last week’s massive sell-off.

“The action last week was pretty destructive to the technical health of the market. That’s not to say we’re doomed to a larger correction, but I think the damage done last week is not easily undone,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland. “There’s been good earnings news ... but it seems to me good news is not having as big an effect on stock prices as bad news is having.”

Before Wednesday’s open, the Labor Department’s latest reading of its Consumer Price Index , or CPI, which suggested inflation is on the rise and offered a compelling counterpoint to concerns that the economy is slowing. But government data indicating declines in crude and gas inventories renewed worries about energy costs.

Market analysts said the day’s trading underscores the level of fear on Wall Street following last week’s massive sell-off.

Oil futures were volatile, settling up 15 cents at $52.44 a barrel on the New York Mercantile Exchange, after the government’s weekly fuel inventory report showed a decline in crude and gasoline stores; analysts had expected a build for both.

Consumer prices jumped 0.6 percent in March, according to the Labor Department, the biggest surge in five months as the costs rose sharply for everything from energy and food to clothing, hotel rooms, airline tickets and medical care.

There were significant pressures in the CPI, the most closely watched inflation gauge, even excluding the volatile costs of food and energy. The so-called core rate of inflation rose by a worrisome 0.4 percent, the largest jump in 2½ years and double what economists had expected. While some investors were concerned by the implications of higher inflation, analysts said corporate outlooks were likely to have more influence over the direction of stocks in the near-term.

“Any concern about the CPI, and how it’s going to affect the market because of a more aggressive Federal Reserve, are overstated,” said Hogan of Jefferies & Co. “The real focus should be corporate America and earnings and guidance, and that has been better than expected. The fact is, some household names are giving us great news on the earnings front.”

Caterpillar surged 3.6 percent, or $3.09, to $88.04, after reporting a 38 percent rise in first-quarter profits on strong sales of its heavy machinery and engines, bounding past estimates from analysts surveyed by Thomson Financial. The company also boosted its revenue and profit expectations for the year.

Intel added 3 cents to $22.66 after the chip maker reported robust profits and sales thanks to the continued popularity of notebook computers and their relatively pricier microprocessors. The results easily beat Wall Street estimates, and Intel said its growth is expected to continue in the current quarter.

Yahoo Inc. gained 4.3 percent, or $1.43, to $34.65, after the search powerhouse doubled its first-quarter profits on a rising tide of online advertising. Per-share earnings beat expectations by 3 cents. Yahoo’s growth reflects the increasing amount of time consumers are spending online, curtailing their exposure to television, radio, newspapers and magazines.

Juniper Networks Inc. soared 6.4 percent, or $1.37, to $22.63, after the network router producer’s first-quarter revenues doubled, driving earnings sharply higher, beating expectations.

Embattled carrier US Airways Group Inc. announced it is in advanced discussions to merge with America West Holdings Corp. , a combination that would create a national low-cost airline to better compete with discount rivals. America West was down 31 cents at $4.50 on the news. US Airways, which is planning to emerge from bankruptcy-court protection later this year, was up 14 cents at 78 cents per share on the over-the-counter Bulletin Board.

Overseas, Japan’s Nikkei average added 0.2 percent. In Europe, France’s CAC-40 slid 0.3 percent, Britain’s FTSE 100 shed 0.7 percent and Germany’s DAX index fell 0.6 percent.

The Associated Press contributed to this report.

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