Inflation Fears Push Stocks Lower Across the Board

NEW YORK —  Bearish investors went looking for bad news Friday and found it in reports showing a briskly expanding services sector and a jump in prices paid by manufacturers -- two signs of potentially higher inflation that could push the Federal Reserve Board to tighten credit at a faster pace.

A new record for oil prices added to the inflation fears.

Stocks were down across the board, capping the fourth losing week in a row for the Dow Jones industrial average.

The Dow sank 99.46 points, or just less than 1%, to 10,404.30. The Standard & Poor’s 500 index fell 7.67 points, or 0.6%, to 1,172.92, and the Nasdaq composite dropped 14.42 points, or 0.7%, to 1,984.81.

In active trading on the New York Stock Exchange, declining issues narrowly outnumbered advancers.

Wall Street largely discounted the Labor Department’s monthly report showing that 110,000 jobs were created in March, only half the number that economists were expecting.

Traders instead focused on the Institute for Supply Management’s latest report on the services sector of the economy -- mistakenly released a few days early -- showing faster-than-expected growth last month.

A second institute report on the manufacturing sector showed a slightly slower pace of expansion in March but a surge in an index measuring prices paid by manufacturers, such as for raw materials.

“The market has had the jitters for some time over oil and inflation,” said Kate Warne, market strategist at Edward Jones in St. Louis. “Then, today they got sort of a trifecta: The oil price hit a record, [manufacturing] prices were rising faster than expected, and the jobs report fueled fears that the economy is slowing even as inflation is heating up.”

In a mix-up that initially caused confusion in the markets, the ISM services index -- scheduled for release Tuesday -- was mistakenly released at the same time as the ISM manufacturing report. The services index for March was 63.1, well above the reading of 59 that analysts generally had expected. The February reading was 59.8.

Any reading above 50 in the ISM indexes means the economy is expanding.

The companion manufacturing index came in at 55.2 for March, down from February’s 55.3 reading and just slightly higher than the consensus estimate of 54.9. But the manufacturing report’s prices-paid index shot up to 73.3 in March from 65.5 in February.

Oil prices hit a record $57.70 for a barrel of light crude in intraday trading on the New York Mercantile Exchange before easing to a closing record of $57.27, up $1.87. Oil traders were speculating that U.S. refineries might be unable to cope with rising fuel demand this summer.

Still on Wall Street’s mind was a Goldman Sachs report predicting that oil prices could jump to $105 a barrel within two years.

“There’s a bearish tone to the market that simply wants to seek out whatever information confirms its view,” said economist John Lonski of Moody’s Investors Service. “Any forecast calling for a doubling of oil prices from this already record level is implicitly projecting an acceleration of world economic activity.”

It would be hard to imagine such a surge in economic growth, he said, at a time when the Fed is raising interest rates.

In the bond market, traders apparently reacted more to the weak jobs report than to the ISM numbers. The yield on the 10-year Treasury note eased to 4.45% from 4.48% on Thursday.

In other market highlights:

* The Dow was pulled lower partly by index component American International Group, the subject of a widening regulatory probe. AIG shares plunged $4.46 to $50.95.

* Shares of Nara Bancorp rebounded 80 cents to $14.85. The Los Angeles banking firm, which caters to Korean immigrants, said late Wednesday that it would restate 2002 earnings and that its chief financial officer had been reassigned and a board member removed. The stock tumbled $3.20 on Thursday.