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Inflation Data Sink Stocks

Updated from 4:18 p.m. EST

Stocks in the U.S. fell Friday as the latest round of inflationary data led investors to fear that the Federal Reserve might be reluctant to lower rates again.

The Dow Jones Industrial Average dropped 178.11 points, or 1.32%, to 13,339.85, and the S&P 500 was down 20.46 points, or 1.37%, at 1467.95. The Nasdaq Composite was off 32.75 points, or 1.23%, at 2635.74.

The major averages finished with losses of more than 2% over the five sessions, ending a two-week winning streak.

Breadth was negative. On the New York Stock Exchange 3.36 billion shares changed hands, and volume on the Nasdaq reached 1.94 billion shares. Losers beat winners roughly 3 to 1.

"Technically, this is a bad place for the market to close, especially on a Friday," said Paul Mendelsohn, chief investment strategist with Windham Financial. "There was nothing today that was really positive. There was a lack of buying, and we may see that problem as people window-dress from here until the end of the year."

The decline followed a hotter-than-expected read on inflation at the retail level. The Labor Department's consumer price index rose 0.8%, compared with expectations of a 0.6% increase. The core number -- which excludes food and energy -- climbed 0.3%, slightly above estimates.

Investors fear that the unexpected jump in the CPI affirms the Fed's concerns of rising inflation and dampens the hopes for any further rate cuts. The central bank reduced the fed funds rate by 25 basis points on Tuesday but noted higher energy prices as a potential concern for inflation.

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