U.S. Stocks Fall As Oil, Fed Fuel Inflation Concerns

NEW YORK (MarketWatch) -- U.S. stocks opened lower Tuesday, as renewed gains in crude oil prices fueled fears about the economy, and Federal Reserve Chairman Ben Bernanke revived expectations of a possible interest-rate hike to contain inflation.

"Bernanke's inflation fighting, hawkish comments are weighing ... at the open today," said Marc Pado, market strategist at Cantor Fitzgerald.

The Dow Jones Industrial Average dropped 26 points, or 0.2%, to 12,254 in early morning trade, as 24 of its 30 components opened lower.

The S&P 500 index lost 7 points, or 0.5%, to 1,354, while the Nasdaq Composite lost 22 points, or 0.9%, to 2,436.

The market has been plagued by concerns that surging oil prices will further dampen consumption. At the same time, should commodities price inflation start seeping into core prices, the market fears the Fed will eventually hike interest rates.

After dropping sharply on Monday, crude oil futures for July delivery were recently up $2.25, or 1.7%, at $136.60 a barrel.

Even "$135 crude isn't good enough," Pado said. "Under $130 might help."

"The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing from growth as well as inflation," Bernanke said at a conference hosted Monday night by the Boston Federal Reserve Bank.

Data points

In economic news, the U.S. trade deficit widened to $60.9 billion in April on higher prices for crude oil and other commodities, the Commerce Department reported.

Imports rose 4.5% to $216.4 billion, while exports increased 3.3% to $155.5 billion. Excluding the impact of inflation, the trade deficit slipped by 0.1% to the lowest level in nearly five years.

In the markets Monday, the Dow industrials had ended with a gain of 70 points at 12,280 -- a small rebound in the wake of Friday's nearly 400-point slide.

After Monday's closing bell, Texas Instruments raised the midpoint of its earnings forecast, saying it expects second-quarter earnings of between 43 and 47 cents a share, and revenue of $3.33 billion and $3.46 billion. That translates to a midpoint of $3.4 billion.

The company had previously said it expects earnings in the range of 42 to 48 cents a share, and revenue in the range of $3.24 billion to $3.50 billion, or a midpoint of $3.37 billion. Analysts expect TI to report earnings of 46 cents a share on revenue of $3.39 billion.

The dollar was higher against major global currencies as Bernanke's remarks stoked ideas that a rate hike could be in store sooner rather than later. The greenback was also lifted late Monday by comments from U.S. Treasury Secretary Henry Paulson, who said he wouldn't take the option of foreign-exchange intervention off the table.

European markets were lower Tuesday, with London's FTSE 100 stock index off 0.4% to 5,853.70. The pan-European Dow Jones Stoxx 600 index was down 0.5% to 307.17.

By Nick Godt