U.S. stocks ended lower Wednesday after Federal Reserve Chairman Ben Bernanke said he was uncomfortable with inflation and uncertain about the economy, compounding the impact of a weak durable goods report.
The Dow Jones industrial average ended down 96.93 points, or 0.78 percent, at 12,300.36. The Standard & Poor's 500 Indexdropped 11.38 points, or 0.80 percent, to close at 1,417.23. The Nasdaq Composite Index finished down 20.33 points, or 0.83 percent, at 2,417.10.
Escalating tensions between Iran and the West also kept investors on edge and boosted crude oil prices nearly 2 percent.
Meanwhile, home builders such as Beazer Homes USA Inc. (BZH) dragged the Dow Jones U.S. Home Construction Index down 2.66 percent.
Bernanke told Congress core inflation, excluding more volatile food and energy costs, remained "uncomfortably high," dispelling expectations of a rate cut any time soon.
The Fed chairman also said subprime mortgage market problems could delay a housing recovery.
"It would make sense to lower rates to stimulate that market, but I don't think Bernanke could do that in light of his concerns about inflation," said Craig Smith, chief executive of Swiss America Trading Corp. in Phoenix, Arizona.
All but one of the Dow's 30 stocks ended down, pushing the blue-chip gauge to a third straight day of losses, while the S&P 500 turned to about even in the year-to-date.
Bernanke's congressional testimony came a week after the Fed's policy-setting committee held benchmark overnight borrowing costs steady at 5.25 percent and said inflation was its top concern.
In announcing that decision, however, it dropped an explicit reference to the possibility of interest rate increases contained in prior statements, giving a boost to financial market expectations that a rate cut might be near.
"Anybody that was looking for a rate cut shortly is fooling themselves," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut. "The market may have reacted too positively to the Fed's statement last week."
On the New York Mercantile Exchange, front-month May crude settled up $1.15, or 1.8 percent, at $64.08 per barrel, trading in a range from $63.36 to $64.96.
Oil prices shot up over $5 to $68.09 late on Tuesday on a rumor, later dismissed by U.S. officials, that a U.S. naval vessel had clashed with Iran.
Also on Wednesday, orders for durable goods — so-called big-ticket items, meant to last three years or more — rose by a smaller-than-expected amount in February. Orders excluding the volatile transportation category fell for the fourth time in five months.
Boeing shares fell $1.07, or 1.18 percent, to $89.45, while shares of GE slipped 24 cents, or 0.67 percent, to $35.55 and those of 3M dropped 79 cents, or 1.02 percent, to $76.38.
Shares of home builders extended losses after Beazer Homes, the sixth-largest U.S. home builder, said it is cooperating with federal prosecutors in a probe relating to its mortgage lending. Beazer shares slid 8.4 percent, or $2.64, to $28.77.
Altria Inc. (MO), parent of cigarette company Philip Morris, was the only Dow stock to end in positive territory after Goldman Sachs (GS) recommended the stock. Altria advanced $1.13, or 1.33 percent, to $86.21 on the NYSE.
Shares of Wal-Mart Stores Inc. (WMT) fell 85 cents, or 1.79 percent, to $46.64 after its chief executive said in a television interview late Tuesday that 2007 is going to be a "challenging" year.
Among banks, shares of Bank of America Corp., the second-largest U.S. bank, dropped $1.07, or 2.1 percent, to $50.77, while JPMorgan Chase shed 58 cents, or 1.2 percent, to $47.99.
Shares of package delivery company FedEx Corp. slid $2.38, or 2.2 percent, to $107.67. The stock was the biggest contributor to a 1.2 percent drop in the Dow Jones Transport Average Index , which notched its third straight day of losses.