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NEW YORK (CNN/Money) -
Stocks slumped Thursday -- with the Nasdaq hitting a new yearly low -- after the latest GDP report seemed to hint at a much-dreaded scenario: slowing growth paired with higher inflation.
The Dow Jones industrial average (down 128.43 to 10,070.37, Charts) lost nearly 1.3 percent and the broader Standard & Poor's 500 (down 13.16 to 1,143.22, Charts) index lost around 1.1 percent.
The tech-heavy Nasdaq composite (down 26.25 to 1,904.18, Charts) fell nearly 1.4 percent, closing at its lowest point since October 14 of 2004.
Treasury prices rallied, sending yields lower, and the dollar climbed versus other major currencies.
After the close, tech bellwether Microsoft (Research) reported in line fiscal third-quarter earnings that rose from a year ago on revenue that rose from a year ago, but missed estimates. The company also issued fiscal fourth-quarter revenue guidance that is above current estimates and that sent the stock higher after hours.
Gross domestic product grew at a 3.1 percent annual rate in the first quarter, the government said early Thursday. That was the slowest quarterly growth in two years and fell short of economists' forecasts for a 3.5 percent pace. GDP grew at a 3.8 percent rate in the fourth quarter of 2004.
The GDP report's inflation component, the chain deflator index, grew at a 3.2 percent annual rate in the quarter, after growing at a 2.3 percent annual rate in the fourth quarter. Economists surveyed by Briefing.com thought it would grow at a 2.1 percent annual rate.
Worries about a slowdown in economic growth, amid a rising interest rate environment, have weighed on investor sentiment lately, and the first-quarter read on gross domestic product growth seemed to play right into those concerns.
"The headwinds facing the market are plentiful," said Art Hogan, chief market analyst at Jefferies & Co., citing the GDP report and jitters ahead of Microsoft's earnings.
Friday brings economic reports that speak to the inflation question, and are therefore likely to be market-moving.
Personal income and spending figures are due before the bell. Spending is expected to have risen 0.4 percent in March after rising 0.5 percent in February. Income is expected to have risen 0.4 percent in March after rising 0.3 percent in February.
The core PCE index, the spending report's main inflation gauge, is expected to have risen 0.3 percent after rising 0.2 percent in February.
The PCE index is particularly relevant, in that Federal Reserve Chairman Alan Greenspan is known to watch it closely, said Michael Sheldon, chief market strategist at Spencer Clarke. Should that number top estimates Friday, stocks might react on the downside.
Earnings keep pouring
Investors eyed a mixed bag of earnings news from companies that had reported.
Exxon Mobil (down $2.38 to $56.00, Research) said it earned $1.15 per share, up from a year earlier, but short of analysts' forecasts.
Shares fell 4 percent and topped the New York Stock Exchange's most-active list.
Fellow Dow stock Procter & Gamble (up $0.46 to $53.99, Research) said it earned 63 cents per share, up from 55 cents a year earlier and two cents more than expected. That sent its shares modestly higher on the session.
It was one of the few Dow stocks to rise, with 26 out of 30 ending the session lower.
Other decliners included Walt Disney (down $0.94 to $25.90, Research), General Electric (down $0.73 to $35.67, Research) and Citigroup (down $0.86 to $46.19, Research).
Sanmina-Sci (down $0.71 to $3.79, Research), a contract electronics manufacturer, fell nearly 16 percent in active Nasdaq trade after warning that its fiscal third-quarter earnings would fall short of expectations. The company, which makes products for IBM, Hewlett-Packard and others, cited weakness in its computing systems group.
Martek Bioscience (down $27.59 to $32.49, Research) fell 46 percent in unusually active Nasdaq trade after warning that fiscal third-quarter, fourth-quarter and 2005 earnings and revenue will miss estimates due to lower demand. The maker of microalgae-based infant formula said current-quarter results, its fiscal second, should come in at the high end of its earlier range.
Brocade Communications (down $0.47 to $4.57, Research), a computer data storage manufacturer, slumped nearly 10 percent after Merrill Lynch downgraded the stock on bets that Brocade's fiscal second-quarter earnings will miss forecasts.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers eleven to five on volume of 1.74 billion shares. On the Nasdaq, losers topped winners by more than three to one as 1.90 billion shares changed hands.
U.S. light crude oil for June delivery reversed an earlier slide and settled up 16 cents at $51.77 a barrel on the New York Mercantile Exchange. Oil had fallen as low as $49.80 earlier in the session and had provided a counterpoint to the negative economic news, until it reversed course.
Treasury prices rallied, with investors pouring money into the relatively safe haven of fixed income. The gains lowered the 10-year note yield to 4.14 percent from 4.22 percent late Wednesday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar rose versus the euro and the yen.
COMEX gold fell $1.70 to settle at $432.40 an ounce.
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