Stocks Fall Sharply on Interest Rate Concerns

NEW YORK – Wall Street fell sharply Friday, extending its losses for the week as concerns about inflation and oil prices once again stirred interest rate concerns. The Dow Jones industrial average was at times down more than 150 points.

A pullback coming a day after decent gains was characteristic of the somewhat erratic sessions Wall Street has seen in recent weeks as it has dealt with concerns ranging from interest rates to the health of hedge funds to prospects of unfavorable legislation from Washington.

Friday's session, unusually devoid of economic or earnings data, began with a focus on the initial public offering of a stake in the management arm of Blackstone Group LP. The most talked-about IPO since Google Inc. (GOOG) went public saw the buyout shop's stock open well above the $31 a share at which it had been priced late Thursday. The stock recently changed hands up $4.70, or 15.2 percent, at $35.70. Enthusiasm over Blackstone wasn't broad enough to prop up the markets.

"Nobody wants to go into the weekend overextended. Once you see start to see momentum push it down it's hard to stay in the way of it," said Bill Schultz, chief investment officer at McQueen, Ball & Associates, referring to the stock market.

"There are clearly worries now that are creeping in that weren't necessarily there before," he said, citing concerns about inflation, rising oil prices and the woes of subprime lenders.

In midday trading, the Dow industrials fell 161.12, or 1.19 percent, to 13,384.72. On Thursday, stocks fluctuated before ending higher, with the Dow recovering 56 points following a 146-point tumble on Wednesday.

Broader stock indicators also dropped Friday. The Standard & Poor's 500 index fell 19.61, or 1.29 percent, to 1,502.58, and the Nasdaq composite index fell 32.36, or 1.24 percent, to 2,584.60.

Stocks fell even as bonds rose; the yield on the benchmark 10-year Treasury note fell to 5.15 percent from 5.20 percent late Thursday.

Light, sweet crude rose 20 cents to $68.85 per barrel on the New York Mercantile Exchange.

Investors have been grappling with concerns about whether the economy will heat up and prompt the Federal Reserve to put off cutting, or perhaps even raising, interest rates. Also, concerns about the health of Bear Stearns hedge funds involved with subprime loans, those made to people with poor credit, have weighed on the markets. In addition, news from Washington has shown some lawmakers are impatient with some of the vast sums Wall Street investors have generated and could look to tamp down big payouts with higher taxes.

Schultz contends the pullback in stocks isn't unexpected given the sizable gains Wall Street has seen. Heading into trading Friday, the Dow was up 8.7 percent for the year, while the S&P 500 had advanced 7.3 percent and the Nasdaq had risen 8.4 percent.

"There's a point where you need to see a pause before people get excited again. Do you commit at this point or do you wait for a pullback? There's a sense that maybe we may be a little bit overextended here."

Friday's session brought volatility for some stocks as the Standard & Poor's 500 index and the Russell indexes implemented changes, adding and subtracting some names. The changes can stir some unusual trading activity as investments that track the index try to square their holdings with the latest look of an index. The S&P 500 is dropping PMC Sierra Inc. (PMCS) and ADC Telecommunication Inc. (ADCT), sending the shares lower as investors try to exit positions.

PMC fell 36 cents, or 4.3 percent, to $7.78, while ADC fell 63 cents, or 3.3 percent, to $18.51.

Neil Massa, senior trader at MFC Global Investment Management, contends stocks were showing volatility Friday in part because of the rebalancing of the Russell indexes. Even the moves among some smallcap companies can affect larger stocks, he said, as investors jockey for positions.

"I think it spills over and I think this is a little healthy pullback from the highs we've been seeing," he said.

The session comes ahead of a busy week in which the Federal Reserve meets and in which investors will receive several readings on the housing sector and the final report on economic growth in the first quarter, with release of the gross domestic product.

In corporate news, Jabil Circuit Inc. (JBL), a contract electronics manufacturer, rose $2.22, or 10.5 percent, to $23.42 after its fiscal third-quarter profits excluding items such as restructuring costs topped Wall Street's estimate.

Cognos Inc. (COGN), a software maker and technology consultant, forecast a fiscal second-quarter profit that fell short of Wall Street's expectations. The stock fell $1.01, or 2.6 percent, to $38.61.

Taser International Inc. (TASR), the stungun maker, rose 71 cents, or 5.6 percent, to $13.34 after a court dismissed a lawsuit alleging the company's product resulted in an accidental death.

The Russell 2000 index of smaller companies fell 9.86, or 1.17 percent, to 829.95.

Overseas, Japan's Nikkei stock average fell 0.28 percent, while the sometimes-volatile Shanghai Composite Exchange fell 3.3 percent. In afternoon trading, Britain's FTSE 100 fell 0.30 percent, Germany's DAX index fell 0.29 percent, and France's CAC-40 fell 0.18 percent.