Stocks End Lower amid Higher Inflation

A stronger-than-expected rise in consumer prices and drop in consumer sentiment weighed on prices

As snow and ice fell on Wall Street Friday, stocks dropped following reports showing consumer prices rose more than expected and consumer sentiment weakened. Though there is still nervousness about subprime mortgage troubles and economic growth, the latest economic data suggests that the Federal Reserve won't change rates at its meeting next Tuesday and Wednesday, says Standard & Poor's Equity Research. Quadruple witching, the expiration of key futures contracts and options, sparked some volatility, notes S&P.

The Dow Jones industrial average fell 49.27 points, or 0.41%, to 12,110.41. The broader Standard & Poor's 500 index was down 5.33 points, or 0.38%, to 1,387.5. The tech-heavy Nasdaq composite lost 5.33 points, or 0.38%, to 2,386.95.

Next week, along with the Fed's policy meeting, investors will get updates on housing starts and home sales. On the earnings calendar, Oracle (ORCL) reports results on Tuesday and FedEx (FDX) will be on Wednesday.

In economic news Friday, the consumer price index rose 0.4%, with the core CPI up 0.2%, in February. On a year-over-year basis, headline prices are up 2.4% from 2.1% in January, while core prices were steady at 2.7%. As with the PPI, energy was a factor driving prices higher as they reversed higher from January declines, says Action Economics.

But there was positive news from the manufacturing sector. U.S. industrial production rebounded a big 1.0% in February, after a 0.3% slide in January (revised up from -0.5%). That boosted capacity utilization to 82.0% from 81.4% (revised up from 81.2%).

U.S. consumer sentiment fell to 88.8 in the preliminary March reading from the University of Michigan. That's below the forecast and down from the 91.3 final for February. Action Economics says the drop "is not too surprising given the drop in equities and frenzy over subprimes."

"So far, all the data has been pointing toward the Fed retaining its tightening bias next week, even if it makes a more distinct concession to subprime weakness," says Action Economics.

The subprime sector got some good news for a change on Friday. Shares of Accredited Home Lenders (LEND) climbed after the company announced it will sell $2.7 billion in loans at a substantial discount to help meet margin calls from lenders.

Shares of Fremont General (FMT) were also up after the lender said Credit Suisse Group had boosted its line of credit to $1 billion.

Private equity firm Blackstone Group is preparing to sell a stake to the public and could file plans for an IPO in the next two weeks, according to CNBC and other news reports.

Hewlett-Packard (HPQ) gained after the company announced plans to buy back an additional $8 billion worth of its stock.

Newmont Mining (NEM) rallied after a BusinessWeek article reported that Barrick Gold (ABX), the world's No. 1 gold producer, may go after Newmont for its proven, probable reserves of 95 million ounces. In a deal, BusinessWeek says Newmont would be priced in the mid-$50s.

Wal-Mart (WMT) scrapped plans to establish a bank, which was surrounded with controversy.

In earnings news, AnnTaylor Stores (ANN) said its fourth-quarter profit fell, on a 6% drop in same-store sales. The apparel retailer cited unusually warm winter weather and fashion miss at its AnnTaylor Loft stores. The company set a $300 million stock buyback.

In the energy markets, April West Texas Intermediate crude oil futures were up 35 cents to $57.90 a barrel.

European markets ended slightly lower Friday. In London, the FTSE-100 index fell 2.6 points, or 0.04%, to 6,130.6. Germany's DAX index lost 5.6 points, or 0.09%, to 6,579.87. In Paris, the CAC 40 index was down 7.69 points, or 0.14%, to 5,382.16.

Asian markets finished with losses Friday. In Japan, the Nikkei 225 index declined 116.24 points, or 0.69%, to 16,744.15. In Hong Kong, the Hang Seng index edged down 15.94 points, or 0.08%, to 18,953.5.

Treasury Market

Treasury prices fell slightly on Friday. Another round of solid inflation readings and a rebound in the industrial sector helped drive yields sharply higher early in the session, but wilting consumer sentiment and fresh declines on Wall Street pulled yields back down to opening levels, says Action Economics. "Core CPI played 'good cop' to PPI's 'bad cop', but the overall sweep of inflation combined with a bounce in capacity use provided little incentive for the Fed to alter its course next week, despite lingering subprime issues," says Action Economics. The 10-year yield settled at 4.545%.