- The Washington Times - Tuesday, March 21, 2006

U.S. stocks slumped for a second day as a speech by Federal Reserve Chairman Ben S. Bernanke and a government report on producer prices suggested interest rates will keep climbing this year.

Homebuilders and utilities, among the companies most sensitive to higher rates, led the market’s descent from the highest levels in almost five years. Oracle Corp. fell after sales of new databases trailed analysts’ estimates.

Prices slid initially after Mr. Bernanke said low long-term rates don’t signal a slowing economy, and the Labor Department’s report showed wholesale prices, excluding food and energy, rose for a fourth straight month in February. Concern that the Fed won’t stop raising rates soon thwarted a midday rebound.

“If there’s any catalyst out there for equities, it’s the Fed,” said Mark Jordahl, who oversees $55.1 billion as chief investment officer at First American Funds in Minneapolis. “A quarter or a half a point too much could be a policy mistake and slow the economy too much.”

The Standard & Poor’s 500 Index slipped 7.85, or 0.6 percent, to 1297.23, its biggest drop in two weeks. The Nasdaq Composite Index fell 19.88, or 0.9 percent, to 2294.23. The Dow Jones Industrial Average lost 39.06, or 0.4 percent, to 11,235.47.

General Motors Corp. helped stem the Dow’s decline, rising on speculation the automaker may cut costs by offering 70,000 workers incentives to retire.

The Fed decides March 28 whether to lift the main U.S. interest rate for a 15th straight time from 4.5 percent.

In his last scheduled appearance before that meeting, Mr. Bernanke said he doesn’t interpret the narrowing gap between short- and long-term rates as “indicating a significant economic slowdown to come,” and it may even reflect investors’ confidence in the economy.

Consumer finances appear healthy, Mr. Bernanke added in his comments to the Economic Club of New York yesterday.

More than three stocks fell for every one that rose on the New York Stock Exchange. Some 1.57 billion shares changed hands on the Big Board, 4.4 percent below the three-month average.

Some investors took the chairman’s talk as a positive sign.

Equities since 2002 “have been cheaper in America than they have been in a quarter of a century” relative to bonds, said Ken Fisher, who manages $30 billion as chairman of Fisher Investments Inc. in Woodside, Calif. The Fed’s effort to fight inflation “keeps the equity market strong.”

D.R. Horton Inc., the largest U.S. home builder, slipped $1.06 to $32.35. All 16 home builders that are members of S&P; indexes fell. Higher interest rates may curb demand for mortgages and loans.

A gauge of utilities in the S&P; 500 lost 1 percent. Higher yields on bonds make dividend payments from companies including utilities less attractive. The utilities index pays a 3.5 percent dividend yield, almost twice the S&P; 500’s 1.8 percent.

TXU Corp., the largest Texas power producer, fell $1.29 to $47.14.

The Labor Department said the core rate of prices paid to factories, farmers and other producers rose 0.3 percent last month after a 0.4 percent gain in January. Total wholesale prices fell 1.4 percent, the biggest drop in almost three years.

The so-called yield curve inverted for the first time in nine days after Mr. Bernanke’s comments.

The yield on the benchmark two-year Treasury note rose by the most since October, increasing 8 basis points to 4.73 percent. The yield on the benchmark 10-year note added 5 basis points to 4.71 percent.

Oracle dropped 10 cents to $13.62 in a volatile session. The company said database license revenue, an indicator of future growth, was $827 million in the fiscal third quarter, slightly below estimates.

GM climbed $1.15, or 5.5 percent, to $22. The world’s largest automaker and Delphi Corp. are close to offering as many as 70,000 workers incentives to retire as part of a deal to cut costs, according to a labor analyst monitoring the talks.

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