Stocks slid further Wednesday after Federal Reserve Chairman Ben Bernanke appeared to chide investors who may have looked past concerns about inflation following Fed comments last week. The Dow Jones industrials fell more than 100 points.
In Capitol Hill testimony, Bernanke said while core inflation slowed modestly in the second half of 2006, recent readings remain uncomfortably high. He also said an implosion among some mortgage lenders that cater to those with poor credit doesn't appear to have spread to the broader economy, though he added that the situation warrants further observation.
Stocks rallied last week after investors interpreted language from the Fed as opening the way to the possibility of a reduction in interest rates. But concerns about stubborn inflation could upend investors' hopes for a reduction in rates, even as the economy continues to cool.
I think what the Fed is trying to tell us is that it is between a rock and a hard place. And when you're between and a rock and a hard place you just can't move, said Drew Matus, senior economist at Lehman Brothers Holdings Inc.
In late morning trading, the Dow industrials were down 86.60, or 0.70 percent, to 12,310.10.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 7.74, or 0.54 percent, to 1,420.87, and the Nasdaq composite index fell 14.19, or 0.58 percent, to 2,423.24.
Bernanke's testimony before Congress' Joint Economic Committee on the country's economic outlook comes a day after renewed concerns about the housing market helped send stocks lower.
The Dow Jones industrials had their biggest pullback in two weeks Tuesday after a report showing a drop in prices of single-family homes had investors theorizing that the housing market might continue to sour and hurt consumer spending.
Bonds rose after Bernanke's comments. The yield on the benchmark 10-year Treasury note fell to 4.57 percent from 4.61 percent late Tuesday.
Matus contends the markets might have overestimated the Fed's ability to lower interest rates.
In reality, there's a lot of uncertainty. You don't move forward unless you can see the path and I don't think they can see the path, he said of the central bank. The Fed has left short-term interest rates unchanged at its last six meetings, interrupting a string of 17 straight increases that began in 2004.
You can't cut rates to try and spark growth and hope to contain inflation at the same time. That just doesn't work, Matus said.
The dollar was mixed against other major currencies, while gold prices rose.
Economic data also appeared to weigh on stocks. Orders for durable goods increased 2.5 percent in February amid an increase in sales of commercial aircraft and autos after a 9.3 percent falloff in January. Wall Street had expected the Commerce Department report would show a 3.5 percent gain. The weak reading for January helped contribute to a Feb. 27 global selloff that cut the Dow industrials by 416 points. Excluding the volatile transportation sector, orders fell 0.1 percent, the fourth drop in five months.
Beyond concerns about housing, Wall Street is watching as oil prices rise amid political tensions in the Middle East over the detention by Iran of British sailors and marines. Light, sweet crude on Tuesday settled at its highest level since December on the New York Mercantile Exchange and rose $1.47 to $64.40 Wednesday. Weekly government domestic crude inventory figures from are due Wednesday.
In corporate news, homebuilder Beazer Homes is under investigation for its mortgage lending practices as well as other financial dealings by a host of government agencies. Beazer, which fell $3.05, or 9.7 percent, to $28.37, said it is complying with a request for documents from a federal prosecutor.
Vyyo Inc., which makes communications equipment, jumped $1.36, or 18.2 percent, to $8.83 after receiving $35 million in funding from Goldman Sachs & Co.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 555.2 million shares.
The Russell 2000 index of smaller companies fell 5.28, or 0.66 percent, to 797.08.
Overseas, Japan's Nikkei stock average closed down 0.64 percent, while Hong Kong's Hang Seng index fell 0.78 percent. The Shanghai Composite index, after a volatile session in which it had been down sharply, rose 1.09 percent to its eighth straight record close.
In afternoon trading, Britain's FTSE 100 fell 0.46 percent, Germany's DAX index fell 0.57 percent, and France's CAC-40 declined 0.53 percent.
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