- The Washington Times - Wednesday, June 6, 2007

NEW YORK (AP) — Stocks slid for a second session yesterday after an increase in labor costs stirred concerns about inflation and interest rates.

The Dow Jones industrials fell almost 130 points as the yield on the benchmark 10-year Treasury note flirted with 5 percent.

Data showing labor costs rose a higher-than-expected 1.8 percent, raising inflation concerns. The Labor Department also reported that productivity waned in the first quarter. The readings did little to alleviate investor concerns that the inflation-wary Federal Reserve might lean toward raising rather than lowering rates later this year.

The inflation jitters came alongside the European Central Bank’s widely expected decision to raise its key interest rate by a quarter of a percentage point to 4 percent. Stocks in Europe declined sharply; Britain’s FTSE 100 fell 1.66 percent, Germany’s DAX fell 2.40 percent, and France’s CAC-40 fell 1.66 percent.

“In the last week or two, the expectation that the Fed was going to lower interest rates in the next six months has been put to the side, so the bond market has reacted,” said George Shipp, chief investment officer at investment adviser Scott & Stringfellow, referring to a recent rise in bond yields as investors saw a reduction in interest rates as less likely. Yields move higher as bond prices fall.

He said investors shouldn’t read too much into the pullback in stocks.

“The market has come a long way. We’re down for a couple days, but we’ve been up for 11 out of the last 12 months. Right now, you’d have to call it normal profit taking.”

The Dow fell 129.79, or 0.95 percent, to 13,465.67.

The Standard & Poor’s 500 Index fell 13.57, or 0.89 percent, to 1,517.38, and the Nasdaq Composite Index fell 24.05, or 0.92 percent, to 2,587.18. The Russell 2000 Index of smaller companies fell 7.04, or 0.83 percent, to 841.21.

Yesterday’s decline came a day after the three major indexes slumped after remarks by Fed Chairman Ben S. Bernanke and service-sector data hinted that the economy is on the rebound, lowering the chance of an interest-rate cut. Despite the fresh concerns about inflation, the economic picture doesn’t appear to have changed substantively from last week when the S&P; 500 broke a seven-year closing record and the Dow continued to hit fresh highs.

“I think the underlying fundamentals that have gotten us to this point — global growth, excellent corporate profitability, obviously a lot of merger activity — haven’t changed,” Mr. Shipp said.

Wall Street kept a close eye on the Treasury market as the 10-year note’s yield approaches 5 percent, a level not seen since August. Bonds rose as stocks fell; the yield on the benchmark 10-year Treasury note fell to 4.97 percent from 4.98 percent late Tuesday.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.55 billion shares compared with 1.51 billion traded Tuesday.

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