Stocks knocked lower
Major gauges manage to trim some losses, but remain in the red on Yahoo, weak read on housing; mild inflation reading, falling oil little help.
By Steve Hargreaves and Alexandra Twin, CNNMoney.com staff writers

NEW YORK (CNNMoney.com) -- Stocks trimmed losses by the close Tuesday after a tough session hurt by discouraging comments from Yahoo!'s chief financial officer and revived worries about the economy following a big drop in housing starts.

On Wednesday, the focus turns to the Federal Reserve Board, which meets to discuss interest-rate policy

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The Nasdaq composite (down 13.38 to 2,222.37, Charts) lost 0.6 percent. The tech-heavy index had been down at least 1.3 percent earlier.

The Dow Jones industrial average (down 14.09 to 11,540.91, Charts) and the broader Standard & Poor's 500 (Charts) both saw slim declines, recovering from bigger earlier losses.

Falling oil, gold and gas prices failed to rouse the bulls and instead added to consolidation in the oil, gold and gasoline stocks, making commodities one of the worst-performing sectors of the day.

Also pressuring markets: An apparent coup attempt in Thailand that led that country's prime minister to declare a state of emergency and prepare to abruptly leave a United Nations summit in New York. Thailand is an economic cornerstone of Southeast Asia.

Treasury prices slipped, boosting the corresponding yields and the dollar was mixed versus other major currencies.

Stocks had been down all morning, as a report showing further weakness in the housing market overshadowed any relief about the day's mild read on inflation.

But the declines accelerated after Yahoo!'s CFO, speaking at a Goldman Sachs technology conference, said the online advertising market is showing signs of softness due to a slowdown in the economy, and that earnings would be impacted by this. Yahoo! (down $3.25 to $25.75, Charts) shares slumped 11.2 percent.

Main competitor Google (down $10.88 to $403.81, Charts) fell, as well as other Internet companies such as eBay (down $0.89 to $25.95, Charts) and Amazon.com (down $0.50 to $31.58, Charts). The Goldman Sachs Internet (Charts) index lost 2.3 percent.

"It's noteworthy when a high-profile company like Yahoo! gives the Street negative guidance," said Ted Weisberg, New York Stock Exchange trader at Seaport Securities. "But I think it's a little early to get wound up about the overall third-quarter earnings picture."

Stocks were mixed Monday, after hitting multi-month highs the week before. But the tone was more negative Tuesday, and was likely to stay that way ahead of Wednesday's Federal Reserve policy meeting.

"I think basically we are waiting for the Fed and the general consensus is that they will do nothing in terms of interest rates," Weisberg added. "So then, as usual, the focus is on the message."

The central bank is widely expected to hold rates steady at 5.25 percent, as it did in August, after two years of rate hikes. The central bank is also expected to keep its statement largely unchanged, still suggesting that a slowing economy will take the edge off inflation.

Inflation mild, housing tanks

The Producer Price Index (PPI) rose 0.1 percent in August versus forecasts for a rise of 0.2 percent. Core PPI, which excludes volatile food and energy prices, fell 0.4 percent, when economists thought it would rise 0.2 percent.

The report seemed to support recent bets that inflationary pressures are moderate enough that the Fed can hold steady at Wednesday's meeting.

That belief sent Treasury prices higher, sending the the benchmark 10-year note yield down to 4.73 percent from 4.80 percent late Monday. Bond prices and yields move in opposite directions.

A separate report showed a bigger-than-expected drop in both building permits and housing starts in August. That revived worries about the speed of the housing market cool down and what that might mean for the economy.

U.S. light crude oil for October delivery sank $2.14 to settle at $61.66 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $9.60 to $583.20 an ounce.

In currency trading, the dollar fell against the yen and the euro.

What's moving?

In other news, Motorola (down $0.02 to $24.93, Charts) said it would buy Symbol Technology (up $0.08 to $14.75, Charts), a maker of bar code scanning technology, for about $3.9 billion. The news confirmed speculation about the purchase Monday. Shares of Motorola ended little changed, while Symbol ended barely higher.

ImClone (down $1.36 to $29.16, Charts) lost 4.5 percent and Bristol-Myers Squibb (down $0.17 to $24.71, Charts) almost 1 percent on a regulatory setback. A judge ruled late Monday that three Israeli scientists are the owner of the patent covering cancer drug Erbitux, not Sanofi-Aventis, from whom the two companies have licensed the drug.

Citigroup cut Micron Technology (down $0.39 to $17.74, Charts) to "hold" from "buy," due to the share price being near the brokerage's target, Reuters reported. Shares of the chipmaker fell 2.2 percent.

Micron was one of many chip stocks slipping after last week's advance. The decline sent the Philadelphia Semiconductor (down 10.33 to 458.41, Charts) index, or the SOX, down 2.2 percent.

The Dow's commodity stocks were hit the hardest, with Alcoa (down $0.40 to $28.08, Charts) and Exxon Mobil (down $0.80 to $65.50, Charts) both declining.

Target (up $0.81 to $54.39, Charts) gained after saying late Monday that September sales would be near the high end of its previous forecast.

Market breadth was negative. On the New York Stock Exchanges, losers beat winners by 9 to 7 on volume of 1.50 billion shares. On the Nasdaq, decliners topped advancers by 3 to 2 on volume of 2.13 billion shares.


More on the markets

After the pause: the Fed's kindest cut?

Worried about the economy Top of page

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