Economic Reports Sink Stocks

U.S. stocks declined Friday as a pair of stronger-than-expected economic reports stirred concern about the outlook for inflation and monetary policy.

Investors sold shares of rate-sensitive financial services stocks, with the yields on benchmark U.S. Treasury debt near 5-1/2-month highs. Shares of investment banks Merrill Lynch (MER) and Morgan Stanley (MS) fell more than 1 percent.

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Dragging on both the Nasdaq and the S&P 500 was Amgen Inc. (AMGN). The world's largest biotechnology company posted a marginal increase in quarterly profit, but also reported disappointing clinical trial results for cancer drugs after Thursday's close. Its stock was down 5 percent at $71.12.

Government reports showing stronger-than-expected new-home sales and durable goods orders last month raised speculation that the Federal Reserve may need to resume lifting rates to keep inflation in check.

"One of the risks is that the Federal Reserve is going to raise interest rates, and they're going to get seduced by inflation," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York.

The Dow Jones industrial average was down 61.13 points, or 0.49 percent, at 12,441.43. The Standard & Poor's 500 Index was down 5.44 points, or 0.38 percent, at 1,418.46. The Nasdaq Composite Index was down 5.68 points, or 0.23 percent, at 2,428.56.

Shares of Merrill Lynch slid 2 percent to $93.35, while Morgan Stanley's stock slumped 1.1 percent to $81.30, both on the New York Stock Exchange.

An upbeat earnings forecast from Microsoft Corp. (MSFT) pushed its stock up 1.8 percent to $30.98. The software maker reported quarterly profit fell after Thursday's close, but its results beat Wall Street's expectations and the company raised its full-year profit target.

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