Dow hits new record, Nasdaq slumps

NEW YORK (CNNMoney.com) -- The Dow Jones industrial average ended at a fresh record high Tuesday afternoon, but the broader market suffered as a mild reading on inflation failed to soothe investors concerned about the housing market ahead of a key report.

The Dow (up 37.06 to 13,383.84, Charts) added 0.3 percent, ending at a record 13,383.84. The blue-chip barometer briefly hit an intraday mark of 13,481.60 before retreating a bit. The broader S&P 500 index (down 1.96 to 1,501.19, Charts) ended around two points lower, after hitting a fresh six-year high during the session that set it within 15 points of its all-time high from March 2000.

Special Reportfull coverage

America's cheapest gas is in this town Summer drivers to get a break on gas Why gas prices are likely to keep climbing You'll pay a little less for gas this summer Expect relief from record February gas prices Why gas prices are rising

The tech-fueled Nasdaq composite (down 21.15 to 2,525.29, Charts) lost 0.8 percent, limited by weakness in Amgen and a number of chip and Internet stocks.

Stocks had risen through the early afternoon as investors focused on a mild reading on inflation and what it might mean for interest rates going forward.

However, the advance lost steam in the afternoon, as any enthusiasm about the inflation reading was tempered by a report showing further weakness in home building ahead of Wednesday's housing market report. In addition, some of the day's corporate news wasn't so positive, including profit warnings from Home Depot and Wal-Mart Stores.

After the close, Applied Materials (Charts, Fortune 500) reported quarterly earnings and revenue that rose from a year ago and topped estimates.

The Consumer Price Index (CPI) rose 0.4 percent in April, short of expectations. The so-called Core CPI, which strips out volatile food and energy prices, rose 0.2 percent, as expected.

Overall, the report seemed to indicate a moderate level of inflation, which was comforting to investors following comments last week that the Federal Reserve remains worried about inflationary pressures not moderating.

What was particularly encouraging about the report is that the weakness in core inflation was driven by things that may be sustainable going forward, as opposed to last month's report, said Stephen Stanley, chief economist at RBS Greenwich Capital. He cited the drop in shelter costs in the April report, something he said could reflect an ongoing trend in inflation, as opposed to more "fluky" aspects of the March drop.

Investors are generally looking for signs that inflation is moderating enough that the Federal Reserve can eventually start cutting interest rates, perhaps later this year. In addition, lower pricing pressure would be a positive for the economy and corporate profits.

"If these trends remain in place, there is the potential for the Fed outlook to soften," Stanley said. However, he cautioned that one report is not sufficient to cause the Fed to moderate its stance. He said that the benign numbers in April would need to be sustained in May for the Fed to soften its tone and, perhaps, indicate that the central bankers would consider a cut later in the year.

Stock gains were trimmed in the afternoon after the release of a report from the National Association of Home Builders showed confidence sank in the first part of May. The report was a concern ahead of Wednesday's April housing starts and building permits report.

Another report released in the morning showed that home prices fell in the first quarter. However, that report was dated and had little impact on stocks when it was released.

A separate report, the May NY Empire State index, rose to a level of 8, up from the previous month, but short of forecasts.

The morning also brought comments from a number of Fed officials, including Chairman Ben Bernanke, who discussed financial market regulation at a financial conference, but did not address the U.S. economy or interest rate policy.

Boston Federal Reserve Bank President Cathy Minehan said that inflation has trended lower in recent years but was testing comfortable levels at present. Minehan is a voting member of the Fed's policy board in 2007.

While the economic news was mostly positive, the corporate news was more mixed.

Wal-Mart Stores (down $0.22 to $47.62, Charts, Fortune 500) reported quarterly earnings that rose from a year ago and met estimates. However, the retailer said that results should have been better and warned that current-quarter results won't meet estimates. Shares dipped modestly.

Fellow retailer and Dow component Home Depot (down $0.71 to $38.30, Charts, Fortune 500) reported a drop in quarterly earnings that missed estimates and warned about the current quarter. Shares fell 1.8 percent.

GM (up $1.35 to $31.97, Charts, Fortune 500) was upgraded by Lehman Brothers, Briefing.com reported, one day after DaimlerChrysler (up $0.68 to $84.80, Charts) said it was selling its Chrysler unit to a private equity group for $7.4 billion. GM shares jumped over 4 percent.

Rival Ford Motor (up $0.20 to $8.91, Charts, Fortune 500) also gained.

Amgen (down $2.06 to $54.01, Charts, Fortune 500) shares slipped 3.7 percent in active Nasdaq trading on continued concerns about its anemia drugs. Late Tuesday, the Medicare health insurance program proposed limiting payment for Amgen and Johnson & Johnson's anemia drugs following recent safety concerns. On Tuesday, Banc of America Securities and a number of other brokerages downgraded the stock.

Amgen was the Nasdaq's third most-actively traded stock.

Other heavily-traded decliners on the Nasdaq included Dell (down $0.61 to $24.67, Charts, Fortune 500), Apple (down $1.84 to $107.52, Charts, Fortune 500) and Yahoo (down $0.50 to $28.81, Charts, Fortune 500).

In deals news, Reuters Group (up $2.72 to $74.34, Charts) agreed to be bought by Thomson (up $0.16 to $42.16, Charts) for $17.2 billion, following reports over the last two weeks that the two news companies were in discussions. The combined entity will become the world's largest financial data and information company, overtaking Bloomberg.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than 3 to 2 on volume of 1.64 billion shares. On the Nasdaq, decliners topped advancers by more than 2 to 1 on volume of 2.24 billion shares.

U.S. light crude oil for June delivery rose 71 cents to settle at $63.17 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $4.40 to settle at $674.50 an ounce.

Treasury prices slipped, pushing the yield on the 10-year note to 4.70 percent, up from 4.69 percent late Monday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar slipped against the euro and was little changed against the yen.