Stocks Kept in Check

Traders weigh a better-than-expected report on productivity and unit labor costs against hawkish comments from a Fed official. Commodity prices are slipping.
By Sarina Penn ,

Updated from 9:27 a.m. EDT

Blue-chip stocks in the U.S. were modestly lower early Wednesday as buyers failed to materialize despite a round of mostly positive earnings and a better-than-expected productivity report.

The

Dow Jones Industrial Average

was losing 16 points to 13,005, and the

S&P 500

was down 2 at 1416. The

Nasdaq Composite

was up 4 points at 2487.

On the plus side, the Labor Department said first-quarter nonfarm productivity rose at a 2.2% annual rate, topping the 1.5% consensus estimate and the 1.8% pace in the fourth quarter. Job cuts and reductions in hours worked helped the increase. Growth in productivity is viewed as a sign that inflation is being kept under control.

At the same time, unit labor costs were up 2.2%, a cooler figure than had been forecast and down from a 2.8% advance in the previous quarter.

However, hawkish remarks from a

Federal Reserve

official were contributing to keeping the major averages in check. Thomas Hoenig, president of the Kansas City Fed, said during a speech Tuesday that policymakers might have to look at raising interest rates in order to deal with "serious" inflation issues.

The Fed has lowered its fed funds target rate by 325 basis points since last September as part of its effort to stem the credit crises that has been plaguing financial firms, but during that time, energy and food prices have been soaring, leading to worries that inflation rates could rise too far, too fast.

Those comments, combined with the productivity data, were supporting the dollar, which rose across the board. The euro was losing 0.9% to $1.5394, and the yen was off 0.6% at 105.27. The British pound sank 1% to $1.9526.

Elsewhere, traders were taking in stride another report showing a drop in home sales. The National Association of Realtors said that pending home sales in March fell 1%, meeting expectations. February's decline was revised to 2.8%.

Among companies, tech bellwether

Cisco Systems

(CSCO) - Get Report

reported coming in ahead of analyst expectations last quarter with an adjusted profit of $2.3 billion, or 38 cents a share. Sales ramped up 10.4% to $9.8 billion. Shares were up 0.8%.

Meanwhile, fellow tech names

Sprint

(S) - Get Report

and

Clearwire

(CLWR)

confirmed they are planning to merge their wireless broadband businesses.

The new company, to be named Clearwire, is set to receive a $3.2 billion collective investment from

Intel

(INTC) - Get Report

,

Google

(GOOG) - Get Report

,

Time Warner Cable

(TWC)

and Bright House Networks.

Sprint shares were better by 4.6% and Clearwire jumped 8.1%.

Also, digital television purveyor

DirecTV

(DTV)

said its first-quarter profit swelled by 10% to a better-than-expected $371 million, or on a top line that surged 17% to $4.6 billion.

Dow component

Disney

(DIS) - Get Report

saw its shares add 2% early after the entertainment conglomerate said earnings leaped 22% to $1.1 billion in the most recent quarter. Per-share income handily beat expectations.

Commodity prices were slipping. Crude oil was down 27 cents at $121.57 a barrel ahead of the government's weekly crude stockpile report, and gold futures were off $11.90 to $865.80 an ounce.

Treasury prices were retreating. The 10-year note was down 4/32 in price to yield 3.93%, and the 30-year bond shed 2/32 in price, yielding 4.67%.

Markets abroad were mostly higher. Hong Kong's Hang Seng Index lost 2.5% overnight, but Nikkei 225 in Tokyo climbed 0.4%. Among European bourses, London's FTSE 100, Germany's Xetra Dax and the Paris Cac were all rising 1% or more.

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