Stocks fall as data show drag of higher oil

NEW YORK -- Stocks declined Tuesday as worrisome economic readings underscored the drag of higher energy prices on the economy.

Economic data on inflation at the wholesale level and on the housing market served as reminders of the obstacles the economy faces.

And a brief rise in crude oil only added to investors' inflation worries. While crude fell back below $134 a barrel on the New York Mercantile Exchange, it remains elevated and a difficulty for many businesses and consumers alike. Wall Street is worried that rising energy prices, which affect almost all other costs, are going to prove too much for already strapped U.S. consumers.

And the day's economic data illustrated that the run-up in energy this year is taking its toll. The Labor Department said its index of producer prices jumped 1.4 percent in May -- the largest increase since November and an indication that companies are having to swallow large cost increases.

The core producer price index, which strips out often volatile food and energy prices, rose by a mild 0.2 percent. Still, the big concern on Wall Street is that companies may be forced to pass their rising costs on to customers. Government figures released last week showed consumer prices rising slightly more than expected last month due, in part, to spiking energy prices.

Also Tuesday, the Commerce Department reported a 3.3 percent decline in May home construction and a 1.3 percent dip in building permits -- signs of persistent weakness in the struggling housing market.

Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto, said inflation concerns are weighing on stocks as investors try to readjust their models to factor in the effects of energy prices sustaining high levels. While the price of oil has doubled in the past year, prompting some investors to call a bubble, others are predicting that any pullback in prices would only lessen but not eliminate the pricing pressure.

"The market and bonds are recalibrating themselves lower because of inflation," he said. "I think what you're seeing is more trading activity but more discrimination in terms of quality."

In early afternoon trading, the Dow Jones industrial average fell 54.63, or 0.45 percent, to 12,214.45.

Broader stock indicators declined. The Standard & Poor's 500 index fell 2.43, or 0.18 percent, to 1,357.71, while the Nasdaq composite index fell 3.48, or 0.14 percent, to 2,471.30.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.22 percent from 4.27 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.

In recent trading, light, sweet crude fell 74 cents to $133.87 on the New York Mercantile Exchange.

In corporate news, Goldman Sachs Group Inc., the world's largest investment bank, posted a better-than-expected profit of $2.05 billion during its second fiscal quarter. Goldman rose 77 cents to $182.86.

Wal-Mart Stores Inc. trimmed its capital spending forecast for fiscal 2009, saying it still plans to build fewer so-called supercenters amid a slowdown in the U.S. economy. The stock, one of the 30 that comprise the Dow industrials, declined 60 cents to $58.71.

Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 582.8 million shares.

The Russell 2000 index of smaller companies fell 0.05, or 0.01 percent, to 740.69.

Overseas, Japan's Nikkei stock average fell 0.04 percent. Britain's FTSE 100 closed up 1.16 percent, Germany's DAX index advanced 0.98 percent, and France's CAC-40 rose 0.61 percent.