Bernanke on the brain
Investors bet Fed rate pause may not come as soon as hoped; oil prices surge, Treasury bond yields climb.
By Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Stocks looked set for a positive finish Monday, but turned lower late in the session amid new signs that the Federal Reserve may not be as close to a pause with its interest-rate boosting campaign as previously thought.

The Dow Jones industrial average (down 23.85 to 11,343.29, Charts) fell 0.2 percent, and the broader Standard & Poor's 500 (down 5.42 to 1,305.19, Charts) index lost 0.4 percent. The Nasdaq composite (down 17.78 to 2,304.79, Charts) tumbled about 0.8 percent.

Federal Reserve Chairman Ben Bernanke
Federal Reserve Chairman Ben Bernanke
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Both the Dow industrials and the S&P 500 flirted with new multi-year highs earlier in the session, but the market turned around in the final hour of trading after a televised report said Federal Reserve Chairman Ben Bernanke is worried about the market perceiving him to be dovish on inflation.

"I asked him, 'Mr. Bernanke, did the markets and the media get it right last week in terms of its reaction to your Congressional testimony?'," Reuters reported CNBC anchor Maria Bartiromo as saying about a discussion she had with Bernanke over the weekend.

"And he said, 'No.' He said 'It's worrisome that people would look at me as dovish and not necessarily an aggressive inflation-fighter," the news wire quoted Bartiromo as saying.

Last week, Bernanke said further-interest-rate hikes would be dependent on economic data, but that bankers might pause for one or more meetings. That fueled speculation that the central bank could be ready for a pause as early as June. (Full story.)

As of 5:15 p.m. ET, Nasdaq and S&P futures pointed to a flat to positive opening for stocks on Tuesday.

Looking ahead, April auto and truck sales are the only releases slated for the economic calendar Tuesday. Investors are also set to take in earnings from a number of companies, including food processor Archer Daniel Midland (Research) and wireless provider Verizon (Research).

Inflation jitters

Solid reports on consumer spending and manufacturing kept sentiment upbeat for most of the session, but investors got rattled as oil prices soared and inflation worries took hold.

"It doesn't take a lot to get people worried. It just comes down to oil and interest rates," said Stephen Leeb, president of Leeb Capital Management, referring to the sharp rise in Treasury bond yields.

U.S. light crude oil for June delivery surged $1.82, or about 2.5 percent, to settle at $73.70 a barrel on the New York Mercantile Exchange after a refinery fire in Italy fueled concerns about supply disruptions.

Treasury prices tumbled, raising the yield on the benchmark 10-year Treasury note to 5.14 percent, up from 5.06 percent late Friday. Treasury prices and yields move in opposite direction.

The Commerce Department said consumer spending and personal income both jumped more than expected in March, but that a key inflation reading in the report also rose. (Full story.)

A manufacturing index also showed surprising strength in April. The Institute of Supply Management Index rose to 57.3, versus estimates for a decline to 55. The survey also found that 53 percent of those surveyed paid higher prices to suppliers last month, up from only 42 percent who were reporting higher prices in March. (Full story.)

Chicago Federal Reserve President Michael Moskow also fanned inflation worries, saying Monday that core inflation is at the high end of his comfort zone and tops his list of worries about the nation's economy.

"We worry about everything, but my own personal concern is that inflation is at the high end of my comfort zone. I'm talking about core inflation now; subtract oil, and subtract volatile food prices as well," Reuters reported Moskow as saying in a televised interview.

The dollar also fell sharply, touching a one-year low against the euro and a seven-month low against the yen before recovering slightly. The selloff wasn't a significant driving force behind stocks, but investors still remained focus on the greenback.

What moved?

Technology shares were lackluster. Chip leader Intel (down $0.49 to $19.49, Research) lost 2.5 percent and the Philadelphia Semiconductor index, or the SOX, declined nearly 1 percent.

No. 1 search provider Google (down $19.04 to $398.90, Research) tumbled 4.6 percent and Apple (down $0.79 to $69.60, Research) lost more than 1 percent amid the broad-based tech decline.

Financials also were weak, with JP Morgan (down $0.60 to $44.78, Research), Bank of America (down $0.74 to $49.18, Research) and Lehman Brothers (down $3.83 to $71.75, Research) all tumbling.

Wal-Mart (up $0.90 to $45.93, Research) was the biggest winner in the Dow industrials, rising 2 percent after saying Saturday that its U.S. same-store sales jumped 6.8 percent in April, above forecasts.

Fellow retailers Home Depot (up $0.61 to $40.54, Research) and Federated Department Stores (up $0.92 to $78.77, Research) also gained.

Weakness in the dollar helped exporters, including Deere (up $0.85 to $88.63, Research), which added about 1 percent. A weaker dollar makes U.S. exports more competitive overseas.

Aviall (up $9.26 to $46.96, Research) surged about 25 percent after Boeing said it had agreed to buy the aviation parts and services company for about $1.7 billion, representing a 27 percent premium to Aviall's closing price on Friday.

In other merger news, telecom services company Level 3 Communications Inc. said it would buy private telecom firm TelCove Inc. for $1.2 billion. Level 3 (up $0.32 to $5.72, Research) shares soared 6 percent.

The jump in oil prices helped the Philadelphia Oil Service Sector index (Charts) gain more than 2 percent.

Market breadth was negative. On the New York Stock Exchange, losers beat winners nine to seven on volume of 1.72 billion shares. On the Nasdaq, decliners topped advancers by nearly two to one as 2.11 billion shares changed hands.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.