Stocks Sink on Interest-Rate Jitters

Sentiment continued to worsen as investors shifted funds into cash and bonds

It was more of the same for U.S. stock indexes Tuesday as they finished the session with steep losses amid heavy trading volume. More than inflation fears, concerns that the global uptrend in interest rates will absorb liquidity are weighing on sentiment, says Standard & Poor's Equity Research.

On Tuesday, the Dow Jones industrial average fell 86.44 points, or 0.8%, to 10,706.14. The broader Standard & Poor's 500 index was down 12.71 points, or 1.03%, to 1,223.69. The tech-heavy Nasdaq composite declined 18.85 points, or 0.9%, to 2,072.47.

The U.S. equity losses followed large declines in Asian and European markets Tuesday. Capital is moving heavily out of global equity, energy and commodity markets and into the safety of cash and bonds, notes S&P.

Technical indicators suggest stocks could still be in for a rough ride, analysts say. "Overall, [the] market's technical condition showed no significant changes in yesterday's sell-off," says Richard Dickson, senior market strategist for Lowry's Reports. "Given the current weight of evidence, the odds appear to favor more near-term losses for the market."

Investors were digesting moderate inflation data Tuesday. The overall producer price index rose 0.3%, while the core index added 0.2%, in line wtih expectations, says Action Economics. Wednesday's release of the consumer price index could shed further light on inflation fears.

In other economic data, U.S. retail sales ticked higher 0.1% in May, rising 0.5% excluding automobiles. Tuesday's calendar also holds the release of April business inventories, expected to rise 0.7%.

In earnings news, Goldman Sachs (GS) was lower despite posting second-quarter earnings that nearly doubled, as revenue from investment banking jumped 87%. On Monday, peer Lehman Brothers (LEH) also declined after posting solid quarterly results.

Elsewhere in earnings, electronics retailer Best Buy (BBY) was up after reporting a 38% rise in first-quarter profit on 14% higher revenue.

M&A activity also drew attention. Shares in Maverick Tube (MVK) were sharply higher after the maker of oil and gas line products agreed to be bought by Luxembourg-based Tenaris, the world's biggest supplier of seamless oil and gas pipes, for $3.2 billion.

In technology, wireless company Qualcomm (QCOM) was higher after raising its third-quarter guidance, pointing to solid chip demand and higher handset selling prices.

Semiconductor testing equipment maker FormFactor(FORM) was higher after company won contract to provide Korean based Hyinx Semiconductor with advanced wafer probe cards.

Among other stocks in focus, Krispy Kreme Doughnuts (KKD) was lower after the doughnut maker said it expects to report a loss for its fiscal first quarter.

On the brokerage front, network equipment maker Sun Microsystems (SUNW) was higher after Merrill Lynch boosted its rating on the stock from neutral to buy. Softwaker maker Adobe Systems (ADBE) was higher after Cowen upgraded the stock, saying it could outperform the market by 25% over the next year.

In the energy markets Tuesday, July West Texas Intermediate crude oil futures fell $1.80 to $68.56 a barrel, as the first named storm of Atlantic hurricane season was expected to spare refineries and oil platforms in the Gulf of Mexico.

European markets finished sharply lower. In London, the Financial Times-Stock Exchange 100 index fell 101.3 points, or 1.8%, to 5,519.6. Germany's DAX index dropped 103.41 points, or 1.92%, to 5,292.14. In Paris, the CAC 40 index was down 105.59 points, or 2.24%, to 4,617.59.

Asian markets closed with solid losses. Japan's Nikkei 225 index tumbled 614.41 points, or 4.14%, to 14,218.6. In Hong Kong, the Hang Seng index fell 387.02 points, or 2.48%, to 15,234.42. Korea's Kospi index skidded 35.98 points, or 2.9%, to 1,203.86.

Treasury Market

Treasuries rose slightly on the back of a flight-to-safety bid amid a sell-off in global equities as well as energy and commodity markets. The 10-year note rose 03/32 in price to 101-08/32 for a yield of 4.96%. The 30-year bond rose 03/32 in price to 92-03/32 for a yield of 5.01%.

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