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Wall Street seesaws after earnings, data

Wall Street finished Wednesday slightly lower after the Federal Reserve reported slow but steady regional economic growth, deflating hopes for an interest rate cut that were already dampened by a larger-than-expected producer price index.
/ Source: The Associated Press

Wall Street finished Wednesday slightly lower after the Federal Reserve reported slow but steady regional economic growth, deflating hopes for an interest rate cut that were already dampened by a larger-than-expected producer price index.

Investors’ rate worries trumped their optimism about strong earnings in the financial services sector, which earlier in the day helped nudge the Dow Jones industrial average above 12,600 for the first time.

The Labor Department said before the market opened that the PPI, an indicator of inflation, rose by 0.9 percent in December — slower than in November, but faster than the market expected. Later, the Fed reported in its Beige Book of regional economic conditions that the economy is moderating at a steady pace. Investors believed the reports not only lowered the chances of a rate cut, but also that the Fed might raise rates to curb inflation, a move that could crimp consumer spending and hurt corporate profits.

“Inflation may be a worry, and that is job one at the Fed: to control inflation,” said Kim Caughey, equity research analyst at Fort Pitt Capital Group in Pittsburgh. Wednesday’s PPI figure “makes it more unlikely that easing will happen, and may make it likely for the Fed to raise rates.”

Also weighing on stocks was a rebound in oil prices and an outlook from Intel Corp., the world’s largest chip maker, that suggested profits in the technology sector might weaken this year.

The Dow Jones industrial average finished the day down 5.44 points, or 0.04 percent, after hitting a new trading high of 12,614.00 earlier in the session and after three straight days of record closes.

The broader Standard & Poor’s 500-stock index closed down 1.28 points, or 0.09 percent, while the technology-loaded Nasdaq composite index slid 18.36 points, or 0.74 percent.

Crude on the New York Mercantile Exchange rose $1.03 to settle at $52.24 a barrel Wednesday, rebounding off 19-month lows and leaving investors wondering if energy prices have already bottomed.

Bond prices edged lower on the PPI data and the Fed survey, though most Treasury market participants don’t anticipate any moves by the Fed until much later in the year. The yield on the benchmark 10-year Treasury note rose to 4.77 percent from 4.75 percent late Tuesday.

The dollar slipped against other major currencies, while gold rose.

Before Wednesday’s PPI report, inflation concerns were calmed by a huge tumble in crude oil prices, which should lead to lower fuel bills for consumers. The markets are now bracing for the consumer price index, scheduled to be released Thursday.

The CPI should give investors a good clue to how energy prices are affecting inflation for the average American, said Janna Sampson, co-manager of the AmSouth Select Equity Fund and director of Portfolio Management at Oakbrook Investments.

Oil prices are still down about 15 percent this year.

“Especially for the lower-end consumer, having this drop in energy prices should help to put a little bit more money back in their pockets so they can keep spending,” Sampson said.

Concerns about whether the Fed will raise rates, lower them, or keep them on hold this year has been in the forefront of investors’ minds, offsetting the effects of some corporate earnings reports. Still, the financial results to be released in the coming weeks will be watched closely for signs of strength or weakness in the economy.

“We all know the economy is slowing, we just don’t know how much. Earnings season is a great time to find out how much,” Caughey said.

Strong earnings reports from financial services companies Charles Schwab Corp., JPMorgan Chase & Co. and Mellon Financial Corp. painted a positive economic picture Wednesday.

Those companies’ stocks failed to rally on the news, though, as some investors expected even more robust earnings and worried about signs of worsening credit quality. Charles Schwab fell 49 cents to $19.69, JPMorgan rose 4 cents to $48.43, and Mellon fell 51 cents to $42.91.

Struggling home builders got a boost Wednesday after Lennar Corp.’s chief executive said the company would fare the same or better in 2007 than it did in 2006. The comments bolstered investors’ hopes that the housing market has nowhere to go but up.

Lennar rose $2.23, or 4.5 percent, to $51.95; KB Home rose $1.13 to $50.35, Toll Brothers Inc. rose 35 cents to $31.68, and Centex Corp. rose $1.19, or 2.3 percent, to $52.80.

The technology sector pulled back after Intel said late Tuesday that fourth-quarter profit plunged and that 2007 profit margins would be weaker than analysts had expected. Intel dropped $1.26, or 5.7 percent, to $21.04.

Overseas, Japan’s Nikkei stock average rose 0.34 percent. Britain’s FTSE 100 was down 0.18 percent, Germany’s DAX index was down 0.23 percent and France’s CAC-40 was down 0.53 percent.