Inflation Data Clip Stocks

Stocks close lower but well above their worst levels of the day.
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Updated from 3:40 p.m. EDT

A hotter-than-expected reading on inflation spelled trouble for stocks Tuesday, and the major indices closed the session to the downside.

The

Dow Jones Industrial Average

lost 30.58 points, or 0.26%, to 11,950.02, and the

S&P 500

was off 5 points, or 0.37%, at 1364.05. The

Nasdaq Composite

surrendered 18.89 points, or 0.8%, to 2344.95.

The selling had been markedly worse, with the Dow at one point dropping below 11,900, but after cratering around the midpoint of trading, the market began a steady climb that continued into the last hour.

On Monday, the industrials came up just short of crossing the 12,000 mark for the first time ever, but the index still set another all-time closing high, rising 20.09 points to 11,980.60, thanks to

Alcoa

(AA) - Get Report

and

Exxon Mobil

(XOM) - Get Report

.

Returning to the present, earnings season went into overdrive, but it was economic data that heavily influenced the direction of the market. The Labor Department said the producer price index dropped 1.3% in September, a steeper decline than anticipated, but the core number, excluding food and energy, advanced 0.6% -- three times the forecast.

The PPI data came a day ahead of the consumer price index, the report that's considered the more important of the two when it comes to affecting

Federal Reserve

rate policy. Still, the PPI report made investors jittery ahead of the two-day Fed meeting next week.

Also relegating earnings to the back burner was a string of mergers, the biggest of which will see the

Chicago Mercantile Exchange

(CME) - Get Report

pay about $8 billion for

CBOT

(BOT)

, the parent of the Chicago Board of Trade.

To view Gregg Greenberg's video take on today's market, click here

.

Elsewhere,

Eli Lilly

(LLY) - Get Report

will take over

Icos

(ICOS)

, its marketing partner on the impotence drug Cialis, for $2.1 billion. And in another acquisition,

Level 3

(LVLT)

set plans to buy

Broadwing

(BWNG)

for $1.4 billion.

As for the quarterly reports,

A&P

(GAP)

, the supermarket chain, lost $511,000, or 1 cent a share, for the latest quarter, reversing the year-ago gain-influenced profit of $592 million, or $14.40 a share. Sales fell to $1.57 billion from $1.6 billion a year earlier.

United Technologies

exceeded analysts' third-quarter expectations and raised its profit forecast for the full year, and

Johnson & Johnson

(JNJ) - Get Report

also posted results that were better than Wall Street anticipated.

American Standard

(ASD)

met third-quarter targets but cut its full-year guidance, citing a slower-than-expected rebound in its bath and kitchen business.

After the close, several big tech names will post their results, including

IBM

(IBM) - Get Report

,

Intel

(INTC) - Get Report

,

Motorola

(MOT)

and

Yahoo!

(YHOO)

.

Also on the economic front, the Fed said industrial production fell 0.6% in September, exceeding forecasts. Capacity utilization dropped to 81.9% from 82.5% the previous month.

Meanwhile, U.S. securities bought by foreign investors reached a record value of $116.8 billion in August, according to the Treasury Department. Analysts surveyed by

Bloomberg

were expecting less than half that amount at $56.5 billion.

Treasuries were rising. The benchmark 10-year note was up 3/32 in price and yielding 4.77%.

Light, sweet crude for November delivery dropped $1.01, or 1.7%, to settle at $58.93 a barrel, and gold for December delivery closed down $5 at $593.50 an ounce.

Overseas, stocks were mostly weaker. London's FTSE 100 was down 1% to 6109, and Frankfurt's Xetra DAX was lower by 1.2% at 6115. Tokyo's Nikkei shed 0.5% to 16,612, but Hong Kong's Hang Seng was fractionally higher at 18,015.