- Associated Press - Friday, November 12, 2010

NEW YORK (AP) — Stocks fell Friday as investors worried that China might try to slow its surging economy to combat inflation.

The Dow Jones industrial average dropped more than 90 points in late morning trading. It briefly erased much of its losses after a preliminary report showed that consumer sentiment rose slightly more than expected this month. However, that relief was short-lived.

Energy and materials stocks were among the big losers as the prices of oil, gold and other commodities fell sharply. Oil companies like Chevron Corp. and ExxonMobil Corp. fell more than 1 percent. Freeport-McMoRan Copper & Gold Inc. fell about 3 percent. Intel Corp. was among the few gainers, rising more than 1 percent after the chip maker said it will raise its dividend 15 percent.

The Dow fell 93.09, or 0.8 percent, to 11,190.23 in late morning trading.

The Standard & Poor’s 500 index fell 12.77, or 1.1 percent, to 1,200.77, while the Nasdaq composite index fell 25.80, or 1 percent, to 2,529.72.

The losses in the U.S. follow steep drops overnight in major Chinese indexes as traders fear China might be forced to raise interest rates to combat mounting inflation. The Chinese government said Thursday that the pace of inflation hit a more than two-year high in October.

The Shanghai composite index plummeted 5.2 percent Friday, while Hong Kong’s Hang Seng tumbled 1.9 percent.

Brett D’Arcy, chief investment officer at CBIZ Wealth Management Group, said investors turned their attention to China now that the news flow from the U.S. is winding down. Last week was a heavy one for U.S. news between the midterm elections and the Federal Reserve’s announcement of an economic stimulus plan.

Cooling China’s economy could have an impact worldwide because the country’s robust economy has helped offset sluggish growth in places like the U.S. Many companies have credited international sales, particularly in China, as a reason earnings have been strong.

The speculation about a rate hike in China came as little headway was made on a plan to strengthen global growth. Leaders from the Group of 20, which includes large developed and emerging economies, failed to agree on policies about trade and currency manipulation that could stoke protectionism and a trade war.

The group refused to endorse a plan the U.S. presented to force China to allow the value of its currency to rise. The U.S. argues that China is keeping the value of its currency artificially low because a weak currency makes exports cheaper and more attractive globally. That, in turn, gives China an unfair advantage in global markets, helping its economy at the expense of others.

The dollar resumed its slide against other major currencies. It had rallied in recent days, particularly against the euro as Ireland’s debt crunch renewed worries about the European financial system. A fiscal crisis in Greece this spring helped bring down stocks around the world, and investors are hoping Ireland can right its own finances without having to seek a bailout as Greece did.

Bond prices fell, sending interest rates higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.69 percent from 2.65 percent late Wednesday. The bond market was closed Thursday for Veterans’ Day.

Walt Disney Co. shares jumped 5 percent. The gain came a day after shares dropped after its quarterly results, which showed an unexpected drop in earnings, were leaked early.

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