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NEW YORK - UNITED States stocks swooned on Friday on concerns that surging inflation may prevent the Federal Reserve from lowering interest rates enough to pull the economy out of the grip of a housing and credit crisis.
The three major indexes tumbled more than 1 per cent each, and posted their worst week since Nov 11, after a report showing a jump in the consumer price index in November.
Combined with a sharp rise in producer prices, the reading highlighted concerns voiced by the Fed earlier in the week when it lowered rates modestly.
With inflation making further rate cuts look less likely, retailers, banks and industrial stocks were sold off. Retailer Wal-Mart Stores fell 1.5 per cent and credit card company American Express slid 2.9 per cent.
'The main driver was nervousness. You've got some people using the stagflation word, and you hear that and it messes up the psyche of the average investor,' said Mr Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
The Dow Jones industrial average was down 178.11 points, or 1.32 per cent, at 13,339.85.
The Standard & Poor's 500 Index was down 20.46 points, or 1.37 per cent, at 1,467.95.
The Nasdaq Composite Index was down 32.75 points, or 1.23 per cent, at 2,635.74.
For the week, the Dow was down 2.1 per cent, the S&P was down 2.5 per cent and the Nasdaq was down 2.6 per cent. It was the worst weekly percentage drop for the indexes since Nov 11.
The inflation data followed a decision by the Fed on Tuesday to lower interest rates modestly, and a move by the world's central banks to make it easier for stressed banks to borrow.
But investors saw both responses as inadequate and speculation has grown in the markets about what the Fed might do next.
Higher interest rates make it more expensive for consumers and businesses to borrow money. -- REUTERS
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