U.S. Stocks Drop As Inflation Rises; Dow Down 100 Points

NEW YORK (MarketWatch) -- U.S. stocks fell Friday, gearing up for their largest weekly drop in five weeks, as a rise in consumer prices was seen as bolstering the likelihood for recession while lessening the case for another interest-rate cut at next month's Federal Reserve meeting.

"The big question that still hangs over the stock market is are the problems in housing and the credit markets going to lead to an economic and earnings recession or not. Today is a day where it seems like yes," said Hugh Johnson, chairman of Johnson Illington Advisors.

Down more than 100 points early on, the Dow Jones Industrial Average was more recently down 110 points to 13,408, with 26 of its 30 components hit with losses.

The Dow's hard-hit included Alcoa Inc. , recently down 3.4%, and Home Depot Inc. , off 2.8%.

Another blue chip, Citigroup Inc. recovered from early losses, recently up 1.7%, despite its downgrade by Moody's Investors Service in response to Citi's plan to move about $49 billion in assets from structured investment vehicles onto its balance sheet. .

The Dow's other advancing stocks included Boeing Co. , up 0.8%, and Microsoft Corp. , ahead 1.1%. Coca-Cola Co. also gained, up 0.1%.

Off the Dow, shares of Black & Decker Corp. were off 7% after the power-tool maker warned business conditions and an anticipated recall would dent current-quarter results.

Broader indexes fell as well, with the S&P 500 Index dropping 12.25 points to 1,476.16.

The technology-heavy Nasdaq Composite Index fell 18.23 points to 2,650.26.

Oil slips; gold dims

On the New York Mercantile Exchange, crude futures fell due to concerns that an economic slowdown would lower demand, with crude for January delivery slipping $1.24 to $91.01 a barrel. .

Elsewhere on the Nymex, gold fell $8.3 to $795.7 an ounce.

Volume on the New York Stock Exchange came to 537 million, and reached 954 million on the Nasdaq. Decliners topped advancers on both exchanges, by nearly 3 to 1 on the NYSE and 2 to 1 on the Nasdaq.

Fueling the bearish sentiment was speculation that the latest round of data lessens the chances of another Federal Reserve interest-rate cut next month.

The 0.8 rise in the consumer price index for November proved higher than the 0.7% expected. .

The CPI number is "very troubling," according to Johnson.

"The combination of [Thursday's] wholesale prices and today's consumer prices indicates the Federal Reserve was probably right in only reducing short-term rates 25 basis points," instead of the 50 basis-point cut investors had clamored for, he said.

Other data released Friday included the Fed's report of a slight rise of 0.3% in U.S. industrial production in November, after dropping 0.7% the month before. .

"Though credit-market turmoil will still argue for further easing in January, as does the weak fourth-quarter factory figures in today's industrial production report with big downward revisions, the Fed will face heightened stakes given worsening inflation risks," analysts at Action Economics said.

U.S. stocks remained under pressure Thursday, closing mixed, though Honeywell International Inc.'s earnings forecasts helping lift sentiment on industrials. The Dow industrials ended up 41.1 points, while the Nasdaq ended the day down 2.65 points.

European shares were mixed.

In Asia, Japanese stocks led the region in a broad retreat.

By Kate Gibson