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NEW YORK (CNN/Money) -
Blue chips led a broader stock selloff Tuesday as investors took profits off the two-week rally amid downbeat corporate news and worries about the economic impact of Hurricane Katrina.
Nasdaq and S&P futures pointed to a mixed open for stocks Wednesday when fair value is taken into account.
The Dow Jones industrial average (down 85.50 to 10,597.44, Charts) and the Standard & Poor's 500 (down 9.36 to 1,231.20, Charts) index both lost around 0.8 percent. The Nasdaq composite (down 11.08 to 2,171.75, Charts) lost 0.5 percent.
Treasury prices rose on the morning's benign inflation reports, while the dollar gained versus other major currencies.
Despite the mild inflation reads, stock investors focused on the day's negative corporate news, choosing to cash out after a two-week rally.
Best Buy's weaker earnings and a profit warning from Knight Ridder set stocks off on a sour note. Tame reads on inflation failed to rouse the bulls, with investors waiting to hear more conclusively about the health of the economy in the aftermath of Hurricane Katrina.
Speculation that Northwest and Delta could file for bankruptcy as early as Wednesday added to the negative tone in the afternoon.
In addition, "There's still a lot of uncertainty about Katrina, about how it will effect the economy and for how long," said John Davidson, CEO at PartnerRe Asset Management.
Worries about the economy make Wednesday's retail sales numbers and Thursday's Consumer Price Index the key reads to watch this week, Davidson added.
What moved?
Shares of Northwest Airlines (down $1.74 to $1.57, Research) plummeted nearly 53 percent after a New York Times article said that both Northwest and Delta Air Lines (down $0.07 to $0.78, Research) could file for bankruptcy as soon as Wednesday
A variety of airline and transportation stocks slumped, sending the Dow Jones Transportation Average (down 56.67 to 3,591.21, Charts) down almost 1.6 percent.
Best Buy (down $5.57 to $44.79, Research) reported earnings of 37 cents per share, a penny short of forecasts but up from 26 cents a share a year earlier. Shares of the electronics retailer slipped 11 percent.
A number of retailers were weaker, sending the S&P Retail (Charts) index down 2 percent.
Knight-Ridder (down $3.44 to $61.46, Research) fell after warning that third-quarter earnings would miss forecasts and fall from a year earlier, due to the impact of Hurricane Katrina, among other factors.
Majesco Entertainment (down $1.21 to $1.23, Research) reported a worse-than-expected quarterly loss Monday night and warned that current-quarter results will miss forecasts. The video game publisher and distributor blamed weak sales.
Shares slumped 50 percent in unusually active Nasdaq trade.
Ford Motor (down $0.10 to $9.82, Research) said late Monday that it has agreed to sell its Hertz rental car unit to a group of private equity firms for $5.6 billion plus the assumption of debt. The deal confirmed earlier speculation that it was in talks to sell the unit.
Ford shares lost 1 percent.
On the upside, Nokia (up $0.74 to $16.81, Research) boosted its third-quarter sales and earnings forecasts Tuesday morning, due to strong demand for its mobile handsets. Nokia shares rose 4.6 percent.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than 11 to five on volume of 1.49 billion shares. On the Nasdaq, decliners topped advancers two to one on volume of nearly 1.76 billion shares.
Wholesale prices moderate
Mostly positive reads on inflation failed to stir up the market.
The Producer Price Index rose 0.6 percent in August, versus a 1 percent increase in July. Economists surveyed by Briefing.com were looking for an increase of 0.7 percent in the month.
The so-called core PPI, which excludes often volatile food and energy prices, was flat in August after gaining 0.4 percent in July. Economists thought it would climb 0.1 percent.
A separate report showed that the trade gap narrowed to $57.9 billion in July from a revised $59.5 billion in June, versus forecasts for a widening.
It was surprising that stocks didn't respond better to the fairly reassuring inflation reports, said David Briggs, head of equity trading at Federated investors. However, he said that was likely a result of profit taking after the two-week rally, and worries about oil prices and the next Fed meeting.
The FOMC meets next Tuesday to discuss interest-rate policy, and is still widely expected to continue its nearly 15-month rate-hiking campaign, even amid the fallout from Hurricane Katrina.
"It's also September, a typically bad time of year for the markets," Briggs said, "and I think after two weeks up, people are saying, 'What are we doing here?' and stepping back."
Treasury prices advanced on the inflation news, lowering the yield on the 10-year note to 4.12 percent from 4.17 percent late Monday. Treasury prices and yields move in opposite directions.
The dollar rose versus the euro and the yen.
U.S. light crude oil for October delivery fell 23 cents to settle at $63.11 a barrel on the New York Mercantile Exchange.
COMEX gold fell $3.70 to settle at $450 an ounce.
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