Stocks Lower As Inflation Fears Creep Back

Stocks fell slightly Friday at the end of a week of zigzag trading that saw a steep selloff followed by a dramatic rebound. The major indexes finished the week mixed, with large caps seeing gains and small caps slipping.

Traders paused after a two-session rally undid weeks of selling that had erased the gains in the major indexes for the year. The Dow Jones industrial average gained 110 points Wednesday and nearly 200 points Thursday. It was the index's best two-day run since April 2003.

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"The mentality of the market is one in which investors are looking to sell into strength," said Mike Malone, trading analyst, Cowen & Co. "You're seeing a little bit of profit taking today coming off yesterday's move up."

The day's economic data was robust. The deficit in the broadest measure of foreign trade showed an unexpectedly large improvement during the first three months of this year, but soaring global oil prices are expected to limit such gains.

Inflation-wary traders chose to hang onto Thursday's comments by Federal Reserve Chairman Ben Bernanke that record energy and commodity prices could account for some of the recent uptick in core prices but that inflation expectations have remained within historical ranges.

The Dow Jones industrial average lost 0.64 points, or 0.01 percent, to 11,014.55. The Dow had jumped 198.27 points Thursday.

Broader stock indicators were lower. The Standard & Poor's 500 index dropped 4.62, or 0.37 percent, to 1,251.54, and the Nasdaq composite index fell 14.20, or 0.66 percent, to 2,129.95.

Declining issues led advancers by nearly 2 to 1 on the New York Stock Exchange.

Bonds were lower, with the yield on the 10-year Treasury note rising to 5.12 percent, up from 5.10 percent late Thursday. Bonds have fallen hard this week, sending yields sharply higher. The yield on 10-year Treasury notes Monday was 4.98 percent. The U.S. dollar was up against other major currencies. Gold prices were higher.

Crude oil futures fell. A barrel of light crude settled at $69.88, up 38, cents, in trading on the New York Mercantile Exchange.

After two days of steep losses, the market's recovery Wednesday and Thursday helped the major indexes recover somewhat, and gave hope to investors looking for an end to Wall Street's month-long slide. For the week, the Dow gained 1.13 percent, while the S&P 500 was off 0.05 percent and the Nasdaq lost 0.24 percent.

The question for investors now is whether the late week's rally is sustainable.

"Nothing has happened from the fundamental perspective to change the basic fears that have haunted the market since May," said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco. "Inflation is accelerating, there's tighter monetary policy not just here but internationally and this is going to cause investors to sell riskier assets."

In corporate news, The Home Depot Inc. (HD) fell 46 cents to $36.91 after it found about $10 million in unrecorded stock option expense. Home Depot, the nation's largest home improvement store chain said the amount is not material and it does not plan to restate any of the past year's financial results.

Shares of Oracle Corp. (ORCL) jumped 49 cents to $14.19 after the business software maker said it would beat analyst expectations with a better-than-expected fourth-quarter profit. Oracle made the announcement after the close of trading Thursday.

Lower second-quarter earnings from Carnival Corp. (CCL), the world's largest cruise operator, still beat analysts' estimates and company projections and the stock rose $2.02 to $40.19. The company also reaffirmed its full year forecast.

Adobe Systems Inc. (ADBE) rose 16 cents to $29.12 despite a weak second quarter after Oppenheimer upgraded the software company's shares to "buy" from "neutral."

Volume on the New York Stock Exchange was 2.01 billion shares, up from 1.98 billion the previous session.

The Russell 2000 index of smaller companies fell 7.98, or 1.14 percent, to 693.07.

Overseas, Japan's Nikkei stock average continued to rebound from eight-month lows hit earlier this week, rising 2.82 percent. Britain's FTSE 100 fell 0.39 percent, Germany's DAX index dropped 0.85 percent, and France's CAC-40 lost 0.63 percent.

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