U.S. Stocks Drop as Inflation Tops Forecasts; Retailers Slump

By Lynn Thomasson


Dec. 14 (Bloomberg) -- U.S. stocks fell, completing the steepest weekly drop in a month, after accelerating inflation spurred concern that higher prices will curb consumer spending and give the Federal Reserve less leeway to cut interest rates.

Black & Decker Corp. declined the most since December 2006 after the largest U.S. power-tool maker cut profit forecasts. Circuit City Stores Inc. posted its steepest drop in three weeks on analyst reports saying the second-biggest U.S. consumer- electronics chain will report a loss. Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. led financial shares to their fourth straight decline.

The Standard & Poor's 500 Index declined 20.46, or 1.4 percent, to 1,467.95. The Dow Jones Industrial Average slid 178.11, or 1.3 percent, to 13,339.85. The Nasdaq Composite Index lost 32.75, or 1.2 percent, to 2,635.74. More than five stocks dropped for every one that rose on the New York Stock Exchange. Benchmarks in Asia fell, while most European indexes rose.

``The markets will have some indigestion with this inflation number,'' said Michael Strauss, who helps oversee about $43 billion as market strategist and chief economist at Commonfund in Wilton, Connecticut. ``Consumers are recognizing they really have to hunker down as they see their heating oil costs and their gasoline costs.''

The consumer price index climbed 0.8 percent in November, the most since September 2005, the Labor Department said. Prices excluding food and energy rose 0.3 percent, also more than forecast. The dollar gained the most against the euro since August 2004 as the surge in inflation caused traders to pare bets the Fed will cut rates in January.

Weekly Drop

The S&P 500 lost 2.4 percent in the week, trimming its yearly advance to 3.5 percent, on concern that a concerted effort by central banks in Europe and North America to ease gridlock in credit markets will fail. The Dow average dropped 2.1 percent this week, reducing its 2007 gain to 7 percent, while the Nasdaq decreased 2.6 percent and is up 9.1 percent on the year.

Black & Decker slumped $6.82, or 8.5 percent, to $73.31. Costs from the recall of Dewalt XRP cordless drills and a sales decline in tools and appliances in North America led the company to cut its annual and quarterly projections.

Circuit City fell 59 cents to $6.82. The company's profit margins may shrink as television prices fall and consumers buy fewer warranties, said Bear Stearns Cos. analyst Christopher Horvers. Morgan Stanley analyst Gregory Melich also said the retailer will likely post a third-quarter loss.

Financials Slump

Financial stocks dropped for a fourth day, losing 1.8 percent as a group, as analysts predicted bigger losses for banks and brokerages. S&P 500 diversified financial firms are forecast to report a 63 percent average drop in fourth quarter profit, the worst performance among 24 industries, according to Bloomberg estimates compiled today. That compares with an estimate for a 45 percent decline at the end of November.

Bank of America, the second-biggest U.S. bank, lost 89 cents to $42.16. JPMorgan, the third-largest, retreated 56 cents to $45.20.

Citigroup fell 31 cents to $30.70 after Chief Executive Officer Vikram Pandit's decision to bail out seven subprime- infected investment funds with $49 billion in assets spurred speculation the biggest U.S. bank will cut its dividend.

The S&P 500 Financials Index tumbled 6.1 percent this week even after policy makers in Europe and North America announced plans to revive credit markets by injecting cash into the banking system and the Federal Reserve cut borrowing costs for a third time this year. The rate banks charge each other for three-month loans has stayed near a seven-year high for the past two days.

Fed Bets

Odds that the Fed will hold its benchmark lending rate at 4.25 percent rose to 26 percent after the inflation report, up from no chance yesterday, according to fed funds futures trading.

Amazon.com Inc., the world's largest Internet retailer, fell $3.32 to $89.08 and EBay Inc., the biggest auction site, declined $1.39 to $32.70 after a research firm said online holiday sales grew at the slowest pace ever.

Internet sales from Nov. 1 through Dec. 11 increased 19 percent to $20.5 billion, Reston, Virginia-based ComScore Inc. said. Online sales in November and December may rise 20 percent, a record low for the industry, and slower than the 26 percent pace a year earlier.

U.S. retailers may report the slowest sales growth since 2002 this year as higher fuel and food costs discourage spending during the holiday season, the National Retail Federation said.

'Getting Hit'

``The consumer is getting hit by higher energy prices and given the state of the overall housing market, we're expecting consumers to pull in their spending,'' said Rose Grant, who helps manage about $2 billion at Eastern Investment Advisors in Boston. ``We don't think consumer spending will be as strong as in past quarters.''

Hotel stocks declined after a PricewaterhouseCoopers LLP report said U.S. revenue growth may slow for the industry in 2008. Marriott International Inc., the world's largest hotel company, declined $2.33 to $31.49, the lowest price since 2005. Starwood Hotels & Resorts Worldwide Inc., the third-biggest U.S. hotel company, fell $2.83 to $46.62.

Goldman Sachs Group Inc. added $2.19 to $210.67. The world's biggest securities firm may post record full-year profit of more than $11 billion on Dec. 18, boosted by $4 billion from bets on subprime mortgage-related lending, the Wall Street Journal reported, citing analysts. The gains by a few traders who speculated that subprime securities would lose value helped to compensate for $1.5 billion to $2 billion of losses elsewhere, the newspaper said. A Goldman spokesman declined to comment, according to the Journal.

The Russell 2000 Index, a benchmark for companies with a median market value of $582 million, fell 2 percent to 753.93. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, lost 1.4 percent to 14,792.75. Based on its decline, the value of stocks decreased by $259.7 billion.