US stocks: Markets fall on rate fears

NEW YORK - US stocks sold off sharply today, pushing the three major indexes down more than 1 per cent, after a key inflation gauge hit a 25-year high and stirred fears of higher interest rates, while Pfizer Inc. posted disappointing quarterly results.

A drop of more than US$1 a barrel in crude oil prices hit shares of heavily weighted energy companies like Exxon Mobil Corp., which hurt both the Dow and the S&P 500.

The stock market dropped around midday after a report from the Federal Reserve Bank of Philadelphia showed a key US regional inflation measure rose to its highest level since November 1980.

"It clearly rang the inflation bell," said Jay Indovino, head of trading at Sungard Institutional Brokerage Inc.

Selling pressure mounted late in the day after the benchmark indexes broke key technical levels. The slide wiped out gains from Wednesday's rally in the Dow, which added 128 points, and the S&P 500, which rose 17.62 points.

The Dow Jones industrial average fell 133.03 points, or 1.28 per cent, to end at 10,281.10. The Standard & Poor's 500 Index sank 17.96 points, or 1.50 per cent, to finish at 1,177.80. The technology-laced Nasdaq Composite Index dropped 23.13 points, or 1.11 per cent, to close at 2,068.11.

After the closing bell, shares of Web search leader Google Inc. climbed after the company reported a sharp rise in quarterly profit. Google shares surged almost 9 per cent to US$329.31 on the Inet electronic brokerage system, from their close of US$303.20 on Nasdaq.

"Off of tremendous expectations, the results were better than expected. Google is still top of mind for folks doing Web searches, and that shows up in these results," said Rick Summer, equity analyst at Morningstar in Chicago.

During the regular session, traders said the S&P 500 broke below a key technical point, the 200-day moving average at 1,199.50, which represented a psychological level for investors.

"Everything's off, and I think Pfizer is weighing down on it," said Stephen Carl, principal and head of US equity trading at The Williams Capital Group.

Shares of Pfizer, a Dow component, registered their biggest single-day percentage slide in 10 months to an 8-year low and exerted the biggest drag on the Dow average.

Pfizer, the world's largest drugmaker, said third-quarter profit slid by 52 per cent and withdrew its financial outlook through 2007. The shares fell 8.6 per cent, or US$2.07, to US$21.90 on the New York Stock Exchange.

Health and personal care stocks represented the sector that contributed the most to the Dow's steep drop on Thursday, with the energy sector coming in a close second.

The American Stock Exchange Pharmaceutical Index fell 2.9 per cent.

Among declining health-related stocks, Dow component Johnson & Johnson slipped 0.2 per cent, or 15 cents, to US$64.17 on the NYSE.

"The fact that oil broke close to US$60 today caused a drop in S&P 500 energy stocks," said Jim Paulsen, chief investment officer at Wells Capital Management.

US crude for November delivery slid US$1.38 to settle at US$61.03 a barrel, reflecting ample supplies and less concern about damage to oil facilities from Hurricane Wilma, analysts said.

Dow component Exxon Mobil dropped 3.3 per cent, or US$1.91, to US$55.26, and Chevron Corp. skidded 4.4 per cent, or US$2.59, to US$55.75, both on the NYSE. Exxon Mobil and Chevron also were among the biggest negative influences on the S&P 500.

Rival energy company ConocoPhillips sank 6.2 per cent, or US$3.80, to US$57.75, and helped pull the S&P 500 lower.

The worst-performing S&P 500 sectors were integrated oil and gas companies, followed closely by pharmaceuticals.

The Standard & Poor's integrated oil and gas index lost 4.1 per cent.

Shares of Web auctioneer eBay Inc. fell 6.8 per cent, or US$2.86, to US$39.15 and helped pull the Nasdaq lower, a day after the company gave an outlook that failed to dazzle investors.

Trading was heavy on the NYSE, with 1.98 billion shares changing hands, well above the 1.46 billion daily average for last year. About 1.87 billion shares were traded on Nasdaq, in line with the 1.81 billion daily average last year.

The number of declining stocks outnumbered those rising by about 3 to 1 on the NYSE. On Nasdaq, decliners beat advancers by about 2 to 1.

- REUTERS