U.S. stocks sink, oil and gold fan inflation fears AAP News...

U.S. stocks sink, oil and gold fan inflation fears
AAP News
7:33:020 12/05/2006
(Updates close with quote moved up to paragraph 4, adds
detail on gold in paragraph 9)
By Emily Chasan
NEW YORK, May 11 (Reuters) - U.S. stocks tumbled on
Thursday, suffering their biggest drop in almost four months,
as higher crude oil and gold prices stoked worries about
inflation, consumer spending and more interest-rate hikes from
the Federal Reserve.
Oil prices shot up as outages at U.S. refineries triggered
supply worries, a day after the Fed hinted that more
interest-rate hikes might be needed to keep inflation at bay.
Gold hit a 26-year high.
Interest-rate-sensitive bank and insurance stocks were
among the stocks leading the sell-off, after a disappointing
earnings report from the world's largest insurer, American
International Group Inc. The S&P index of financial services
stocks slid 1.6 percent.
"The market as a whole is very weak because of the
problems with the Fed, and with higher commodities, and then
on top of it all, the techs have some earnings issues," said
Edgar Peters, chief investment officer and director of asset
allocation at PanAgora Asset Management Inc.
Technology shares fell sharply, as the sector has been
buffeted this week by disappointing news, including a profit
warning from computer maker Dell Inc. and a disappointing
revenue outlook from Cisco Systems Inc.
The Dow Jones industrial average slid 141.92 points, or
1.22 percent, to end at 11,500.73. The Standard & Poor's 500
Index fell 16.93 points, or 1.28 percent, to finish at
1,305.92. The Nasdaq Composite Index dropped 48.04 points, or
2.07 percent, to close at 2,272.70.
The Dow was pulled off a six-year peak as AIG, the world's
largest insurance company, fell on a decline in first-quarter
earnings. The stock was the biggest drag on the blue-chip Dow
and the S&P 500, falling 5.1 percent, or $3.39, to $63.15 on
the New York Stock Exchange.
OIL, GOLD AND BOND YIELDS CLIMB
The surge in crude oil prices revived concern that higher
energy costs would filter through to core inflation measures,
increasing the chances of higher interest rates. Crude for
June delivery rose $1.19 to settle at $73.32 per barrel.
A jump in metals prices added to inflationary worries. The
price of spot gold climbed to $726 an ounce, its highest since
January 1980.
The price of the benchmark 10-year U.S. Treasury note
fell after an auction of new notes suggested weak foreign
demand. The note's yield, which moves in the opposite
direction of the price, climbed to a four-year high of 5.18
percent.
"We've been living in a bit of a fantasy world here, and
there's obviously going to be a readjustment from time to time
and we're seeing part of that," said Cummins Catherwood,
managing director of Walnut Asset Management.
Small-cap stocks, which depend on cheaper lending rates
for growth, also took a hit, further pressuring the Nasdaq.
The Russell 2000, a measure of small-company stock
performance, fell 2.4 percent --its biggest drop since October
2005.
GM AND GOOGLE FALL
Shares of General Motors Corp., another Dow component,
fell 2.9 percent, or 78 cents, to $25.81 amid worries about
labor issues at its former auto parts unit Delphi Corp. GM
ranked among the heaviest weights on the Dow average.
Weighing on the technology sector was a drop in the shares
of Web search company Google Inc., which fell almost 4
percent, or $15.98, to $387 before its shareholder meeting.
Dell declined 1.5 percent, or 38 cents, to $24.51, while
Cisco fell 3.4 percent, or 70 cents, to $20.05.
Trading was heavy on the New York Stock Exchange, where
about 1.83 billion shares changed hands, above the 1.61
billion daily average for last year. On Nasdaq, about 2.47
billion shares traded, exceeding last year's daily average of
1.8 billion.
Declining shares beat advancers on both the NYSE and the
Nasdaq by a ratio of about 4 to 1.

REUTERS
Reut 21:33 05-11-06