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Stocks take Thursday thumping
Inflation fears, gold spike and oil prices spark selloff; Dow, Nasdaq post biggest one day drop since January.
By Alexandra Twin and Jessica Seid, CNNMoney.com staff writers

NEW YORK (CNNMoney.com) - Stocks tumbled Thursday, sending the Dow industrials down more than 140 points, as inflationary concerns were among the factors weighing on markets.

The selloff came as investors turned their focus from the strong economy and earnings growth. Gold prices soared, oil jumped and Treasury yields rose - all classic signs investors are concerned about a possible pickup in inflation. The dollar was mixed.

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The 30-stock Dow industrials (down 141.92 to 11,500.73, Charts) sank around 1.2 percent, ending a five-session winning streak, and the Nasdaq composite (down 48.04 to 2,272.70, Charts) skidded 2.1 percent, the biggest one day point-loss for both indexes since Jan. 20.

The broader Standard & Poor's 500 (down 16.93 to 1,305.92, Charts) index slid 1.3 percent.

Stocks ended mixed Wednesday after the Federal Reserve raised its short-term rate target another quarter-point to 5 percent, the 16th straight increase since the central bank started raising rates in June 2004.

In its closely watched statement, the Fed kept the door open for future increases but stressed again that would depend on economic reports before its next meeting, June 28-29.

The combination of all these factors sparked Thursday's selloff, said Harry Clark, chief executive of Clark Capitol Management.

"It's the Fed, it's oil, it's Iran, its Nigeria, it's everything," Clark said. "The market needs a rest." But added that the correction is "very normal" and "very healthy."

Crude oil for June delivery jumped $1.19 to settle at $73.32 a barrel on the New York Mercantile Exchange, building on the previous session's run up.

COMEX gold for June delivery soared another $16.40 to $722.10 an ounce after hitting $728 earlier, a 26-year high.

Treasury prices slipped despite the morning's mild economic news, pushing the yield on the benchmark 10-year note up to 5.15 percent from 5.13 percent late Wednesday. Bond prices and yields move in opposite directions.

On the economic front, April retail sales rose 0.5 percent, the Commerce Department reported. The reading was short of economists' forecasts and down from the previous month, suggesting that higher gas prices may be hurting consumer spending.

On Friday, investors will turn their attention to the Commerce Department's report on the nation's trade balance.

What moved?

Blue-chip declines were broad based, with 27 out of 30 Dow issues falling.

Among stock movers, Dow component American International Group (down $3.39 to $63.15, Research) sank 5 percent. After the close Wednesday, AIG reported weaker quarterly earnings. Earnings excluding items rose from a year earlier, but nonetheless missed analysts' forecasts.

Fellow Dow component General Motors (down $0.78 to $25.81, Research) lost 3 percent, retreating after running up over 14 percent the last two sessions. The stock had risen after the troubled automaker issued a revised quarterly earnings report Monday night that showed a profit.

Other Dow losers included Caterpillar (down $1.35 to $79.62, Research), Microsoft (down $0.55 to $23.22, Research) and Hewlett-Packard (down $0.55 to $32.53, Research).

Dow stock Intel (down $0.22 to $19.36, Research) also tumbled, falling with the broader chip sector. The Philadelphia Semiconductor (down 11.55 to 495.50, Charts) index lost over 2 percent.

JDS Uniphase (down $0.36 to $3.03, Research) sank 11 percent in active Nasdaq trading. Late Wednesday, the networking gear maker said it will sell $375 million of convertible bonds in order to raise money to pay off existing debt, among other uses.

UnitedHealth (down $1.80 to $44.37, Research) fell 4 percent after the health insurer said it may have to restate past earnings by as much as $286 million.

On the upside, News Corp (up $0.57 to $19.69, Research) shares gained 3 percent after the company reported quarterly earnings late Wednesday that nearly doubled from a year earlier and beat analysts' forecasts. The media behemoth also said it would boost its share buyback program to $6 billion from $3 billion.

Movie Gallery (up $1.62 to $4.78, Research) shares soared 51 percent in unusually active Nasdaq trade after the video rental chain said it would be open to some type of deal with Blockbuster. It reported earnings more than doubled, topping estimates, thanks in part to its March 2005 purchase of Hollywood Entertainment.

After the closing bell, shares of Analog Devices (down $0.60 to $34.68, Research) rose 3 percent after the chipmaker reported a second-quarter profit that topped analysts' expectations

Shares of Expedia (down $0.13 to $19.66, Research) fell 17 percent when the travel services company reported a drop in first-quarter profit.

Nvidia (down $1.05 to $28.47, Research) posted a higher quarterly profit on strong sales of chips for personal computers and other devices.

And Merck (down $0.16 to $34.51, Research) announced that Vioxx patients did not suffer an increased risk of heart attacks after they stopped taking the drug, sending shares higher in extended trade.

In currency trading, the dollar fell against the euro after hitting its lowest level in a year versus the currency Wednesday, and was little changed against the yen.

Market breadth was negative. On the New York Stock Exchange, losers beat winners three to one on volume of 1.8 billion shares. On the Nasdaq, decliners beat advancers three to one on volume of 2.5 billion shares.

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End to rate hikes could end the rally. More here.

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