Stocks slump on inflation fears

NEW YORK (CNNMoney.com) -- Stocks opened lower Monday, continuing a selloff spurred by Friday's higher inflation reading.

The Dow Industrials fell around 0.6 percent in the early going, while the S&P 500 lost around 0.8 percent, and the tech-fueled Nasdaq fell roughly 0.7 percent.

The mood on Wall Street has been grim lately amid worries that rising inflation will limit the Federal Reserve's ability to keep cutting interest rates.

That negative outlook persisted Monday amid lackluster weekend retail sales and as investors continued to digest last week's spike in consumer prices, which helped send major indexes tumbling Friday.

That sent broader global markets lower as Asian stock markets fell sharply, while European stocks dropped in midday trading.

"To have inflation layered on top of what we are already worried about is making things tough both domestically and globally," said Art Hogan, chief market analyst at Jefferies & Co.

Investors also overlooked two economic readings issued before the opening bell. The Commerce Department said the current account trade deficit hit its lowest level in two years, as it fell to $178.5 billion during the July-September quarter. A key regional manufacturing reading by the New York Federal Reserve came in weaker than expected.

The Fed has cut rates at its last three meetings in an effort to keep the economy from falling into recession and relieve some of the pressures in the credit markets.

In a televised interview Sunday, former Federal Reserve Chairman Alan Greenspan warned that the U.S. economy was beginning to show early symptoms of stagflation, a condition where the economy experiences slow growth and higher inflation.

In related news, the Fed said it will offer $20 billion in 28-day credit Monday as part of an effort to encourage borrowing by banks and to help alleviate pressure in the credit markets.

Not even a major merger looked able to reverse the tone on Monday. Ingersoll-Rand (IR) said it has agreed to acquire air conditioning firm Trane (TT) for around $10.1 billion.

"That's encouraging, but certainly not enough to lift futures in early trade," said Hogan.

In other corporate news, Ford Motor Co. (F, Fortune 500) is reportedly close to a deciding the fate of its Jaguar and Land Rover brands with the automaker set to announce a preferred bidder as early as this week, The Wall Street Journal reported.

Oil prices extended their decline. Light, sweet crude for January delivery eased $1.12 to $90.33 a barrel in electronic trading.

Treasury prices edged higher, lowering the yield on the benchmark 10-year note at 4.21 percent from 4.2 percent in the previous session.

The dollar climbed against the euro and was narrowly lower against the yen.

Ahead for investors is a reading on home builders' confidence. The National Association of Home Builders releases its monthly index for December at 1 p.m. ET.

Software firm Adobe Systems (ADBE) is among the few companies set to report quarterly earnings Monday. It delivers its results after the closing bell.