NEW YORK (CNN/Money) -
Stocks slumped Tuesday, dragged down by weakness in chips, worries about inflation, and a security scare after anthrax was detected in samples collected from a Defense Department mail center.
The Nasdaq composite (down 16.06 to 2,034.98, Charts) lost 0.8 percent.
The Standard & Poor's 500 (down 9.08 to 1,197.75, Charts) index lost 0.75 percent and the Dow Jones industrial average (down 59.41 to 10,745.10, Charts) lost nearly 0.6 percent.
The major gauges popped in the first 30 minutes of the session following mild reads on the economy, and strong earnings from Lehman Brothers.
But the market turned negative amid weakness in the influential chip sector and comments to Congress from Fed Chairman Alan Greenspan, who warned that continuing budget deficits could cause the economy "to stagnate or worse."
Investors were also unnerved Tuesday after the U.S. government said that samples collected from a Defense Department mail center near the Pentagon had tested positive for anthrax, according to a preliminary study.
"Bond yields are spiking on inflation worries, which isn't helping stocks, the chip sector is falling, and there has been some sputterings about an anthrax scare," said Bryan Piskorowski, market analyst at Wachovia Securities.
On a broader level, the market "remains mired in this trading range," he added, as investors consider the weak dollar and still-expensive oil prices.
U.S. light crude oil for April delivery rose 10 cents to settle at $55.05 per barrel on the New York Mercantile Exchange, not far from the all-time trading high of $55.67 hit in late October. OPEC is meeting in Iran Wednesday to make a decision on production quotas.
"Stocks are likely to be volatile Wednesday and through the end of the week," said Peter Cardillo, chief market analyst at S.W. Bach & Co., as investors digest the news from OPEC as well as a spate of economic news and gear up for Friday's options expiration.
In addition to the OPEC meeting, Wednesday brings reports on housing starts and building permits, industrial production and capacity utilization and the current account deficit. Earnings are also due from Bear Stearns before the open.
Intel (down $0.39 to $23.88, Research) and Advanced Micro Devices (down $0.37 to $16.07, Research) led the list of chip stocks falling. The sector slipped after a Merrill Lynch note said growth in the sector. would likely be stalled for most of the year.
The Philadelphia Semiconductor (down 9.13 to 421.12, Charts) index, or the SOX, which measures the performance of the largest chip and chip gear makers, fell 2.1 percent.
The software sector was also weaker, pushing the Goldman Sachs software (Charts) index down 1.2 percent.
Among Dow movers, American International Group (down $1.93 to $61.92, Research) fell 3 percent after the company said it will delay the release of its annual results by two weeks. On Monday, the troubled insurer's board opted to remove long-time CEO Maurice "Hank" Greenberg.
Exxon Mobil (down $0.93 to $60.35, Research) declined, along with other oil stocks. The Philadelphia Oil Services (Charts) index lost 1.5 percent.
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On the upside, shares of Walt Disney (up $0.58 to $28.60, Research) gained after Sunday's announcement that Robert Iger will replace Michael Eisner as CEO when the embattled chief leaves in September.
Lehman Brothers (up $2.87 to $96.19, Research) gained 3 percent after reporting quarterly earnings that rose from a year earlier and beat estimates. The brokerage attributed its gains to strength in its bond business and revenue from investment banking.
Lehman is the first of four brokerages to report results this week, with Bear Stearns (up $1.29 to $106.03, Research) due next.
Shares of Tivo (up $2.87 to $6.70, Research) rose nearly 75 percent in active Nasdaq trade. The company said it will supply its digital video recording system to Comcast in a deal that should build up its distribution.
In other news, ex-WorldCom CEO Bernard Ebbers was convicted for his role in the accounting scandal that resulted in the largest bankruptcy in U.S. history. WorldCom has emerged from bankruptcy and is now called MCI (up $0.50 to $59.31, Research).
Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than two to one on volume of 1.51 billion shares. On the Nasdaq, decliners beat advancers three to two on volume of just under 2 billion shares.
Retail sales rise modestly
Retail sales rose 0.5 percent in February, the Commerce Department said in a report released early Tuesday. Sales increased an upwardly revised 0.3 percent in January. Economists surveyed by Briefing.com thought sales would rise 0.6 percent.
Sales excluding autos rose 0.4 percent in February after rising an upwardly revised 1 percent in January. Wall Street economists, on average, thought sales would be up 0.8 percent in the month.
A separate report, the New York Empire State index, climbed to 19.6 in March from 19.2 in February. Economists thought it would rise to 19.9.
The report on January business inventories, released around 30 minutes into the session, showed a rise of 0.9 percent, in line with estimates and up from 0.2 percent in the previous month.
The reports initially seemed to comfort investors by alluding to the key middle ground for the economy that is best for stocks -- strong growth, little inflation. However, analysts said that certain factors -- such as the upward revision to January retail sales, undermined that, creating new inflation worries.
That was reflected in the bond market, where treasury prices fell, raising the 10-year note yield to 4.53 percent from 4.51 percent late Monday.
Investors have been particularly attuned to signs of inflation in the day-to-day economic news of late, amid worries that the Federal Reserve may have to amp up its "measured" rate-hiking campaign. Over the long term, higher rates can slow economic growth and corporate profits and cut into stock prices.
In currency trading, the dollar gained versus the euro and fell versus the yen.
COMEX gold fell 20 cents to trade at $441.40 an ounce.
In global trade, Asian stocks ended lower Monday, and European markets ended mostly higher.