Stocks Fall Amid Inflation Worries

NEW YORK – Stocks fell Tuesday after a much larger-than-expected rise in U.S. producer prices in October raised concerns about inflation and aggressive interest-rate hikes from the Fed, while a lackluster sales report from Wal-Mart prompted investors to sell the retailers' shares.

The Dow Jones industrial average (search) fell 62.59 points, or 0.59 percent, to finish at 10,487.65. The broad Standard & Poor's 500 Index (search) was down 8.38 points, or 0.71 percent, to close at 1,175.43. The technology-laced Nasdaq Composite Index (search) slipped 15.47 points, or 0.74 percent, to end at 2,078.62.

All three stock indexes posted their largest 1-day percentage loss in more than three weeks. The pullback marks a pause for breath after the stock market's strong rally following the presidential election.

After the closing bell, Hewlett-Packard Co. (HPQ) posted a quarterly profit that exceeded its own diminished expectations as the computer and printer maker said it had record revenues in every business and every region. Trading in the stock was halted after hours. During the regular session, Hewlett-Packard shares rose 26 cents, or 1.34 percent, to end at $19.68.

Investors are worried that the jump in the Producer Price Index (search), which rose 1.7 percent in October after a 0.1 percent hike in September, would either eat into fourth quarter profits or be passed on to consumers, with the latter option possibly spurring inflation as time goes on.

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

"Today's strong PPI report might increase the odds that the Fed will go ahead and raise rates in December, which could be a reason behind the modest pullback in the market today," said Michael Sheldon, chief market strategist at New York brokerage Spencer Clarke.

The Labor Department (search) is scheduled to report on the consumer price index for October on Wednesday.

The 1.7 percent increase in the PPI was the largest since January 1990. Without energy and food costs, which can swing widely from month to month, "core" wholesale prices climbed in October by 0.3 percent for the second month in a row.

While oil prices have retreated in recent weeks, the lingering effect of October's $55-per-barrel highs may be felt through the rest of the year by businesses and consumers. However, prices have fallen sharply in recent weeks, giving hope to some stability in energy costs through the winter. A barrel of light crude was quoted at $46.11, down 76 cents on the New York Mercantile Exchange (search).

Analysts argued that mediocre forecasts for fourth quarter earnings, especially among retailers, has made investors more cautious after three weeks of exuberant buying.

"We had a very nice run, but now I think the market's a little overbought," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research. "The surge is certainly out of the way now, so it's going to be left to fundamentals, and those are pretty lackluster right now. There's nothing there to really blow your hair back."

Financial stocks were hurt, as higher interest rates can lead to lower loan volumes. JP Morgan Chase & Co. (JPM) fell 69 cents, or 1.8 percent, to $38.47, while Citigroup Inc. (C) lost 62 cents, or 1.3 percent, to $46.05.

Retailers are seen as particularly sensitive to higher borrowing costs, which reduce the amount of money their customers have to spend. The Standard & Poor's retailing index was down 1.65 percent.

Wal-Mart's (WMT) stock fell 1.4 percent after the Dow and the S&P 500 component reported that quarterly sales rose just 9.7 percent -- its slowest growth rate in more than 18 months. Wal-Mart fell 81 cents, or 1.4 percent, to $56.89.

Home Depot Inc. (HD) slid 79 cents, or 1.8 percent, to $43.00. The No. 1 home improvement retailer reported a rise in third-quarter profit that topped analysts' forecasts and raised its full-year profit growth estimates.

Investors unloaded some technology shares. A Goldman Sachs survey said tech spending should remain "anemic" this year.

International Business Machines Corp. (IBM), the world's largest computer company, fell $1.03, or 1.1 percent, to $94.89 while Microsoft Corp. (MSFT) fell 27 cents, or 1 percent, to $27.12.

Office supply chain Staples Inc. (SPLS) lost 32 cents to $30.87 after the company beat analysts' forecasts by a penny per share for the third quarter. Profits rose 26 percent from a year ago, but analysts were disappointed with a mediocre fourth-quarter earnings outlook.

Regulatory and accounting troubles continued to plague mortgage giant Fannie Mae (FNM), which said late Monday that its outside auditor refused to certify the company's third-quarter earnings report. Fannie Mae slipped 80 cents to $69.40.

Google Inc.'s (GOOG) stock was down $2.87, or 1.5 percent at $182. The expiration of a restriction period on Tuesday will allow the Web search leader's employees and early investors to sell 39 million shares.

Overall, trading was active, with 1.36 billion shares changing hands on the New York Stock Exchange, just below the 1.4 billion daily average for last year. About 1.9 billion shares were traded on Nasdaq, above the 1.69 billion daily average last year.

Decliners outnumbered advancers on the NYSE by a ratio of 5 to 3, and by about 3 to 2 on Nasdaq.

The Russell 2000 index of smaller companies was down 5.97, or 0.96 percent, at 617.89.

Overseas, Japan's Nikkei stock average fell 0.59 percent. In Europe, Britain's FTSE 100 closed down 0.68 percent, France's CAC-40 lost 0.7 percent for the session, and Germany's DAX index slipped 0.41 percent.

Reuters and the Associated Press contributed to this report.