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Dow suffers biggest one-day loss in 3 years
Blue-chip measure drops 214 points, other gauges tumble after consumer price report fuels concerns about inflation and interest rates; bonds fall, dollar gains.
By Jessica Seid, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Blue chips led a broad selloff Wednesday, with the Dow Jones industrial average posting its biggest single-day loss in three years, after a stronger-than-expected consumer inflation report re-ignited fears of inflation.

The Dow (down 214.28 to 11,205.61, Charts) skidded about 1.8 percent after being down as much as 245 points earlier. The broader Standard & Poor's 500 (down 21.76 to 1,270.32, Charts) index sank 1.7 percent and the Nasdaq composite (down 33.33 to 2,195.80, Charts) stumbled 1.5 percent, erasing its gains for the year.

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The selling started after the Labor Department said its Consumer Price Index, the government's main inflation gauge, jumped a bigger-than-expected 0.6 percent in April while the so-called core CPI, which excludes energy and food prices, rose by 0.3 percent. Both readings came in a shade above economists' forecasts. (Full story.)

Investors have been particularly concerned about inflation in recent days as they look for clues as to what the Fed will do with interest rates at its next meeting June 28-29.

"The fear of higher inflation was displaced today in the CPI report," said Peter Cardillo, chief market analyst at S.W. Bach & Co, which may mean that the Fed won't pause its interest-rate hiking campaign and decide to raise rates again in June.

The selloff started last week after the Dow, the world's most widely watched stock market gauge, had come within about 80 points of its all-time high set in January 2000. The 30-share Dow is off nearly 4 percent since the selloff started.

Treasury prices tumbled along with stocks Wednesday, raising the yield on the benchmark 10-year note to 5.15 percent, up from 5.10 percent Tuesday. Bond prices and yields move in opposite directions.

But the dollar rallied as investors bet that the Fed might be forced to keep raising rates longer than markets had been expecting.

Higher rates tend to slow economic growth - which can hurt stock and bond prices - but can also help a currency since they tend to attract investors from overseas.

Investors will be paying close attention to the string of economic reports on deck, including jobless claims due Thursday, and new and existing home sales next week.

What moved?

After the closing bell, shares of Synopsys (up $0.03 to $20.44, Research) jumped over 3 percent after the maker of software for designing microchips posted a quarterly profit after a year-ago loss.

BEA Systems (down $0.11 to $11.86, Research) was also higher after the business software maker posted a higher quarterly net profit due to stronger sales and license fees.

And Gymboree (down $0.88 to $32.95, Research) rose in extended trade after the children's apparel retailer posted a sharp rise in quarterly profit.

But shares of Salesforce.com (down $0.33 to $30.17, Research) fell 2 percent after posting a slight quarterly loss on higher expenses.

And online music service Napster (up $0.26 to $3.93, Research) sank 4 percent in extended trade after reporting a narrower quarterly loss.

During the regular trading session, selling was broad-based, with 29 of 30 Dow stocks falling.

Dow component Hewlett-Packard (up $1.05 to $32.16, Research) reported a 45 percent quarterly profit increase that handily beat Wall Street analysts' expectations, sending shares up over 3 percent.

Shares of Applied Materials (down $0.92 to $16.93, Research) fell 5 percent after the chip equipment maker posted a higher quarterly profit but guidance disappointed investors.

Talbots (down $1.19 to $22.77, Research) sank nearly 5 percent after the women's apparel retailer said quarterly profit fell on softer-than-expected sales.

Zale (up $1.26 to $23.06, Research) jumped nearly 6 percent after the jewelry retailer posted a better-than-expected quarterly profit.

Circuit City (up $0.52 to $29.45, Research) gained close to 2 percent after Chief Financial Officer Mike Foss said sales in the quarter have "continued to be very strong."

And Abercrombie & Fitch (up $1.29 to $61.01, Research) rose over 2 percent after the teen clothing retailer said first-quarter net profit rose 39 percent, beating Wall Street estimates

In other news, Verizon Communications (down $0.89 to $30.81, Research) pulled back after it denied earlier media reports that it entered into a contract with the National Security Agency, providing the government office with info about its customer phone calls. AT&T (down $0.67 to $25.10, Research) and Sprint Nextel (down $0.31 to $24.43, Research) were also lower.

Market breadth was negative. On the New York Stock Exchange, decliners topped advancers by five to one on volume of 2.1 billion shares. On the Nasdaq, losers edged out winners by a margin of three to one as 2.4 billion shares changed hands.

Crude oil for June delivery fell 84 cents to $68.69 a barrel on the New York Mercantile Exchange after the government said supplies of gasoline rose less than expected.

COMEX gold for June delivery lost $2.90 to $690 an ounce.

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