Inflation Puzzle Stumps Investors - TheStreet

Updated from 4:05 p.m. EST

Stocks closed little changed Wednesday, having straddled the break-even line for most of the day, with investors torn between higher-than-expected consumer prices and another sharp decline in crude oil in the wake of yesterday's inflation pronouncements from the

Federal Reserve

.

The

Dow

shed 14.49 points, or 0.14%, to 10,456.2, some 500 points below its 2005 high; the

S&P 500

rose a 0.82 points, or 0.07%, to 1172.53; while the

Nasdaq

gained 0.86 points, or 0.04%, to 1990.22, having closed at a five-month low Tuesday. Both the tech and blue-chip indices have closed higher in only three of the past 14 sessions.

Volume on the

NYSE

was 2.25 billion shares, with decliners drubbing advancers by a 3-to-1 margin. Some 1.74 billion shares changed hands on the Nasdaq, where two stocks declined for every one that rose.

In other markets, the 10-year Treasury closed up 9/32 with the yield down to 4.59%, having hit a new eight-month high earlier today, while the dollar reached a one-month high against the euro and yen.

"The markets are looking for some stability right now as they continue to digest all data," said Michael Sheldon, chief market strategist at Spencer Clarke LLC, in referring to back-to-back inflation reports and the central bank's interest rate increase, which happened to coincide with an enormous two-day decline in oil prices.

"Treasuries continue to spook the market; the rise in the yield has had a tremendous negative impact on equities," said Brian Williamson, equity trader at Boston Company Asset Management. "Right now, there isn't much conviction in the market. Decliners continue to outpace the advancers, and the overall sentiment remains negative. Oil also remains a headwind; investors might not feel comfortable until it trades below $50 a barrel."

The government said the consumer price index rose 0.4% in February, vs. a 0.3% forecast; excluding energy and food costs, prices rose 0.3%, compared with a 0.2% forecast. The CPI rose 0.1% in January.

Crude oil added to its early loss after bearish government inventory data. The May futures contract closed down $2.22 to $53.81, a move which also reflected the dollar's continuing strength. Crude inventories rose by 4.1 million barrels in the latest week. Gasoline stocks fell by 4.1 million barrels. Traders were looking for a 2-million-barrel build in crude stocks and a 12-million-barrel decline in gasoline stocks, according to

Reuters

.

"The market we are in right now now means that all good news will be ignored until we can discount interest rates," said Peter Cardillo, chief market analyst at S.W. Bach & Co. "The downward pressure in the market is attributed to the CPI numbers, which confirm the inflationary worries in the Fed's statement yesterday."

"The market will be looking at a key resistance level in the bond market. If the 10-year note breaks through and closes above 4.68%, it could have a dramatic negative impact on the market," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "From the recent economic data in the CPI and PPI numbers, along with the Fed statement, there has been some damage done to the market."

Elsewhere on the economic front, existing-home sales fell 0.4% in February, according to a trade group. The consensus forecast called for a decline of 1.4% to 6.68 million units on an annualized basis.

Oracle

(ORCL) - Get Report

was up 0.4% after reporting third-quarter results last night. The software giant earned 16 cents a share before items in the period, a penny better than forecasts, and said license revenue rose 12% from a year ago.

Investors focused on a 7% decline in applications revenue, excluding results from PeopleSoft. The stock was up 2 cents to $12.51.

A report in

The Wall Street Journal

says

General Motors

(GM) - Get Report

is in talks with private equity investors about selling as much as half of its commercial finance division. The operation is part of GM's main profit center, General Motors Acceptance Corp., and a sale could raise as much as $1 billion to help pay down debt. The stock was down 84 cents, or 2.8%, to $28.70.

Directors of

MCI

(MCIP)

will reportedly meet today to consider

Qwest Communications'

(Q)

most recent takeover offer, which clocked in around $8.4 billion. MCI is currently betrothed to

Verizon Communications

(VZ) - Get Report

and its $6.75 billion bid, but has been hearing from shareholders who are wondering why Qwest's bids have repeatedly been dismissed. Shares of MCI were up 30 cents, or 1.3%, to $23.27, while Qwest's were up 2 cents to $3.79. Verizon's stock was up 48 cents, or 1.4%, to $34.94.

TXU

(TXU)

said it received a subpoena from the

Securites and Exchange Commission

seeking information on financial problems at its European operations. The stock was down 62 cents, or 0.8%, to $76.93.

XM Satellite Radio

(XMSR)

said that starting in 2006, its radios will be factory-installed in every

Hyundai

car. Shares of XM were up $2.41, or 8.6%, to $30.45.

In brokerage news, Citigroup Smith Barney cut electric utility

AES

(AES) - Get Report

to hold from buy, saying rising interest rates and regulatory risks could have an effect on the company. The stock was down 93 cents, or 5.5%, to $16.02.

Legg Mason cut

Mohawk Industries

(MHK) - Get Report

to hold from buy, saying margins at the flooring company will be under pressure until oil prices begin to decline. The stock was down $3.61, or 4.1%, to $83.84.

Overseas markets closed lower, the FTSE 100 finished down 0.54% to 4910, while Germany's Xetra DAX closed down 0.08% to 4317. In Asia, Japan's Nikkei fell 0.9% overnight to 11,739, while Hong Kong's Hang Seng lost 1.3% to 13,604.