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U.S. Stocks Fall on Economy Concern

U.S. Stocks Fall on Economy Concern; Federated, Citigroup Slide

By Michael Patterson

May 10 (Bloomberg) -- U.S. stocks slumped the most in almost two months after falling retail sales, higher import prices and a wider trade deficit heightened concern the economy will slow.

Federated Department Stores Inc. and Nordstrom Inc. dropped after retailers posted the biggest sales decline on record last month. Prices of imported goods climbed for a third month, signaling inflation has yet to ease. A separate report showed higher oil costs led to a wider trade gap in March, which may prompt the government to cut its first-quarter economic growth estimate.

The data came a day after the Federal Reserve reiterated that rising prices remain an obstacle to lower interest rates. Citigroup Inc. and JPMorgan Chase & Co. led financial shares lower and all 16 homebuilders in Standard & Poor's indexes declined on speculation the highest borrowing costs in six years will limit demand for home loans.

``The Fed's pretty much on hold, and yet the economy is slowing,'' said Edward Hemmelgarn, who oversees about $400 million as president of Shaker Investments Inc. in Cleveland. ``These are the fears that are causing people to sell off.''

The S&P 500 fell 14.45, or 1 percent, to 1498.13 as of 2:11 p.m. in New York. The Dow Jones Industrial Average lost 108.90, or 0.8 percent, to 13,253.97. The Nasdaq Composite Index decreased 28.67, or 1.1 percent, to 2547.67.

More than six stocks declined for every one that gained on the New York Stock Exchange. Some 846 million shares changed hands on the Big Board, in line with the same time a week ago.

Economy Watch

Gains in the cost of crude oil spurred a 1.3 percent increase in the import price index, the Labor Department said. Prices excluding fuel rose 0.2 percent.

``The key risk for the market this year is inflation,'' said Bankim Chadha, chief U.S. equity strategist at Deutsche Bank Securities Inc. in New York.

A clearer picture of the inflationary risk will come tomorrow when the government reports producer prices for April and on May 15 when it releases the consumer price index.

Crude oil and gasoline rose today on concern U.S. motor-fuel inventories aren't sufficient to meet demand during the summer driving season. Oil futures increased 0.8 percent to $62.02 a barrel in New York. Gasoline futures jumped 2.4 percent to $2.2839 a gallon.

Trade Deficit

Separately, the nation's trade deficit widened more than forecast in March as higher oil shipments drove the biggest increase in imports in more than four years. The gap rose 10.4 percent to $63.9 billion from $57.9 billion in February.

Elsewhere, initial jobless claims unexpectedly dropped to 297,000 last week. Economists expected an increase to 315,000.

Cold weather and an early Easter curbed sales of lightweight clothing, contributing to an April sales dip for retailers.

Federated, which owns Bloomingdale's and Macy's, said sales at stores open at least a year declined 2.2 percent. Analysts expected an increase of 1.2 percent. The stock tumbled $1.05 to $42.77.

Sales at upscale department store Nordstrom Inc. gained 3.1 percent, short of the analyst estimate of 4 percent. Its shares dropped 81 cents to $54.95.

A record 80 percent of retailers missed analysts' estimates in April, according to Retail Metrics Inc. The government will release its April retail sales report tomorrow. Economists surveyed by Bloomberg expect an increase of 0.4 percent following 0.7 percent gain in March.

Financial Shares

Financial shares were the biggest drag on the S&P 500, losing 1.1 percent as a group.

Citigroup, the largest U.S. bank by market value, fell 46 cents to $53.66. JPMorgan, the third biggest, fell 86 cents to $52.34.

Homebuilders retreated 3 percent as a group as an absence of an interest-rate cut may limit demand for homes. Lennar Corp., the nation's largest builder by revenue, declined $1.33 to $41.84. Centex Corp., the No. 3, slid $1.80 to $45.30.

Earnings reports from Whole Foods Market Inc. and Interpublic Group of Cos. also weighed on the stock market.

Whole Foods, the largest U.S. natural-foods grocer, posted net income of 32 cents a share, 4 cents short of estimates, because of costs to open new stores and increased competition from traditional grocers. The stock plunged $5.11, or 11 percent, to $40.69 for the steepest decline in the S&P 500

Interpublic, owner of advertising agencies McCann Erickson and Deutsch, posted a bigger first-quarter loss than analysts projected and international sales missed some estimates. The stock slid $1.01 to $11.93.

Hershey Forecast

Hershey Co. cut its full-year profit forecast because of higher costs for dairy ingredients. The biggest U.S. candy maker said diluted earnings per share from operations will rise between 4 percent and 6 percent. That's less than its April 19 forecast for a gain on that basis of at least 7 percent. The shares dropped $2.09 to $52.90.

Profit growth for S&P 500 companies averaged 12.1 percent in the first three months of the year after 87 percent of the index's members reported results. Analysts expect earnings growth to slow to 3.8 percent this quarter.

Energy Shares

Energy shares were the biggest drag on the S&P 500 among 24 groups, retreating 1.8 percent. The group surged as much as 16 percent since March 5, when the benchmark reached its 2007 low.

Exxon Mobil Corp. dropped $1.39 to $79.68, paring its advance since March 5 to 14 percent. Chevron Corp., the No. 2 U.S. oil company after Exxon, declined $1.24 to $78.51. Its shares rallied as much as 20 percent since March 5.

Alcoa Inc. dropped 98 cents to $37.75. Chief Executive Officer Alain Belda said the company is willing to sell assets to win regulatory approval for its $26.9 billion Alcan Inc. bid, which would create the world's largest aluminum producer. Alcan shares slipped 5 cents to $78.26.

JetBlue Airways Corp. rallied 45 cents to $10.85. The low- cost carrier promoted Dave Barger to chief executive officer, replacing founder David Neeleman, as the company continued shuffling its leadership since being battered by a winter storm.

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .