Dow Drops on Inflation Concerns; Dollar Rallies

The Dow Jones industrial average fell for the fourth-straight session Monday after a strong home-sales report intensified concerns that the economy’s continued growth may spur inflation.

The Dow fell 13.96 points to 8,782.12, erasing its 32-point gain from earlier in the day. The blue-chip index has lost more than 122 points since Wednesday, the day after it came just shy of crossing 9,000 for the first time.

Broad-market indexes also fell modestly.

The dollar rallied against the yen to its highest level since mid-January after Japanese stocks plummeted on a dose of weak economic data.

The dollar rose to 132.00 yen, up 1.67 from Friday.

Reflecting the dire state of Japan’s economy, the Japanese government on Monday reported that industrial production fell 3.3% in February and predicted a 2.5% fall for both March and April.

Japan’s Nikkei-225 stock index plunged 2.8% on Monday, calling into question the initial enthusiasm for the government’s fiscal stimulus plan and putting Nikkei 18,000 out of reach for fiscal year-end today, save a huge commitment of public funds to the equity market.

On Wall Street, stocks followed bonds lower after the Commerce Department reported that sales of new single-family homes jumped 4.8% in February to a record-breaking, seasonally adjusted annual rate of 893,000.

The stronger-than-expected report spurred speculation that the economy’s pace may aggravate inflation, which would then give the Federal Reserve Board reason to boost interest rates in coming months.

The Fed’s policymaking committee meets today, but no action is expected then.

“There is concern that at some point down the road, if the economy stays strong, that the Fed may have to raise rates,” said Barry Berman, head trader at Robert W. Baird & Co. in Milwaukee. “That’s just making people nervous.”

The yield on the 30-year Treasury bond rose to 5.97% from 5.96% late Friday.

Market participants also focused on slowing corporate profit growth. A number of companies already have said that Asia’s economic crisis hurt profits, and investors believe that more disappointing earnings are on the way.

Also weighing down stocks on Monday was some position-squaring at the end of the first quarter, which ends today. Investors took profits on the market’s recent run-up, with the Dow climbing more than 11% so far this year.

“We began to stall last week and now everyone is just ready for a pause,” said Larry Wachtel, market analyst at Prudential Securities. “We have to remember how far we’ve come already this year.”

While the broad market was lower Monday, strength in Coca-Cola shares helped trim the Dow’s losses. The Atlanta-based soft-drink giant rose $3.31 to $78.38 after it said it expects a 13% to 14% surge in worldwide unit case volume in the first quarter, well ahead of Wall Street analysts’ estimates.

The stocks of oil services companies were dragged lower by the latest downturn in crude oil prices.

Halliburton was off $1.56 at $50.69, and Schlumberger fell 81 cents to $77.

Crude oil closed 55 cents lower at $16.21 a barrel on the New York Mercantile Exchange as the market doubted that the agreement among global oil producers to cut production would be sufficient to keep prices from weakening.

The Nasdaq composite index fell 4.92 points to 1,818.70, hurt by weakness in some key technology shares. Intel fell $1.44 to $77.44, and Cisco Systems fell $1.94 to $67.44.

The Standard & Poor’s 500 stock list fell 1.89 points to 1,093.55; the NYSE composite index was down 0.91 point at 568.89. The American Stock Exchange composite index fell 1.88 points to 736.45.

Among Monday’s market highlights:

* Aluminum Co. of America tumbled $2.50 to $68.25 and Reynolds Metals fell $1.75 to $61.94 after Prudential Securities lowered its opinion of the stocks, along with those of other aluminum companies, because of falling aluminum prices.

* Forest Laboratories rose $1.69 to $31.94 as the drug maker said it will release an antidepressant in the U.S. Its drug Celexa is considered to have fewer side effects than rival Eli Lilly’s Prozac. Warner-Lambert, which will help with the U.S. introduction, rose $2.13 to $168.13.

* Rite Aid rose $1.19 to $34.69 after the drugstore retailer reported that fiscal fourth-quarter earnings rose to 44 cents a diluted share from 35 cents before charges a year earlier, as cost-cutting at its Thrifty Payless West Coast chain boosted profit.

* Centocor rose $2.31 to $45.94 as the pharmaceutical company’s clot-preventing drug, ReoPro, got a major boost with the release of studies showing that it can benefit heart patients significantly.

Market Roundup, D24