Spooked investors hold off; stocks slide

NEW YORK — Stocks stumbled yesterday as mixed economic news and further hints of higher interest rates from Federal Reserve Chairman Alan Greenspan kept buyers at bay.

The Dow Jones industrial average lost 80.62 to 10,754.26, falling back into negative range for the year.

Microsoft, one of the 30 Dow stocks, slipped 14 cents to close at $25.65 a share. Boeing, also a Dow stock, fell 26 cents to $53.66.

The broader gauges also posted declines. The Standard & Poor's 500 index was down 9.59 at 1,200.75. The Nasdaq composite index shed 26.09 to 2,061.34.

Repeating remarks made to a Senate panel Wednesday, Greenspan said the economy continues to expand at a respectable pace, and inflation, while not an immediate threat, remains something policy-makers must guard against. There were few surprises in his comments, but analysts said they served as a reality check for investors.

"Greenspan is doing a good job of preparing American investors for what's ahead: We're in a period of rising interest rates and that's going to continue," said Thomas Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. "He's done an excellent job of balancing the hikes, letting people know it's going to continue, and the market's done a good job of factoring that in. I don't think anything he's saying is shocking anybody."

Analysts attributed the day's trading to a lack of certainty about the strength of the economy, the pace of inflation and how much higher interest rates will go. The prospect of higher rates and questions about how much they will slow the economy are making many investors wary of taking big bets, said John Waterman, chief investment officer at Rittenhouse Asset Management.

"There's always the risk that the Fed steps on the brakes too hard," Waterman said. "We're in kind of a delicate transition. We're trying to get from a recovery mode to a more sustainable mode. Once you get through that, and investors become convinced the economy is going to settle into a sustainable growth mode, then I think the market will start to do better. But we're in a digestion period right now."

Oil prices declined 79 cents to settle at $47.54 on the New York Mercantile Exchange as traders weighed OPEC's forecast of rising global demand against reports of increased U.S. crude inventories. The dollar softened against the euro, gold prices rose and long Treasuries fell. The price of the 10-year note was down, while its yield rose to 4.19 percent, up from 4.16 percent late Wednesday.

Jobless claims were down for a third straight week, the Labor Department reported, as the number of laid-off workers filing for unemployment benefits dropped to the lowest level in more than four years. The decline surprised economists, who had forecast an increase. The data served as fresh evidence of continuing improvements in the labor market.

In another report, the department said prices for imported goods rose by 0.9 percent in January as foreign petroleum prices jumped 4.6 percent and the price of nonpetroleum imports edged up 0.2 percent.

Import prices are expected to continue rising this year as the weaker dollar makes foreign products more expensive for Americans.

Separately, the Conference Board reported that its Index of Leading Economic Indicators slipped 0.3 percent last month after gaining 0.3 percent in December. The decline was blamed on a jump in energy prices, the weaker dollar and cautious business attitudes.