Stocks Close Lower; Inflation Fears Rise - TheStreet

NEW YORK (

TheStreet

) -- Stocks finished lower Tuesday as investors absorbed data showing wholesale inflation and the manufacturing picture muddled.

The

Dow Jones Industrial Average

fell by 49 points, or 0.5%, to 10,452 and the

S&P 500

went lower by 6 points, or 0.6%, to 1108. The

Nasdaq

declined by 11 points, or 0.5%, closing at 2201.

Lagging banking stocks weighed on the Dow in the afternoon, as both

Bank of America

(BAC) - Get Report

and

JPMorgan Chase

(JPM) - Get Report

shed 2.8% and 2.2%, respectively. The KBW Bank Index fell 2.9%.

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Walt Disney

(DIS) - Get Report

led percentage gainers on the Dow, climbing 1.1%.

A brighter oil service sector helped limit equity losses amid mounting headwinds Tuesday. The Philadelphia Oil Service Sector Index advanced by 1.4% in the afternoon. Helping support oil services was news that the Organization of Petroleum Exporting Countries increased its 2010 demand estimates, which in turn helped prop up oil futures Wednesday.

Crude oil for January delivery improved Tuesday by $1.18 to settle at $70.69 a barrel, following a nine-day losing streak, even as the dollar index rose nearly 0.8%.

Energy costs also boosted

producer prices at a faster-than-expected rate in November as the PPI rose 1.8% compared with expectations for an increase of 0.8% and with October's 0.3% uptick.

Excluding volatile energy and food costs, the index was 0.5% higher and still surpassed expectations for a rise of 0.2%. Core producer prices fell 0.6% in October.

The unexpected surge in wholesale prices came as the

Federal Reserve

meets to discuss monetary policy ahead of its rate statement on Wednesday afternoon.

"The inflation numbers were considerably worse than expected, but I think the Fed is still more concerned about slow growth vs. inflation at this point," said Andrew Neale, portfolio manager of wealth management and advisory firm Fogel Neale Partners, who doesn't expect rates to change until the middle of 2010.

Also on Tuesday morning, industrial production rose 0.8% in November, above projections for an increase of 0.5%, and capacity utilization also improved, at 71.3%, compared with 70.6% previously.

Rounding out the morning's economic releases, New York manufacturing

unexpectedly weakened in December, according to the Federal Reserve Bank of New York's general economic index, which fell to 2.55 from 23.51 in November.

The National Association of Homebuilders later added that homebuilder confidence slipped in December. The industry group's homebuilder sentiment index unexpectedly fell to a 16 reading in December from 7 the prior month, its lowest since a June reading of 15. Below 50 suggests that homebuilders are negative on the market.

Gold prices weakened with the February contract settling 80 cents lower to $1,123 an ounce.

Overseas, Hong Kong's Hang Seng fell 1.2%, and Japan's Nikkei dropped 0.2%. The FTSE in London fell 0.6%, and the DAX in Frankfurt was up by 0.2%.

Earlier Tuesday,

Kraft Foods

(KFT)

said it

would remain disciplined as it pursues an acquisition of

Cadbury

(CBY)

. Kraft's stock fell off by 14 cents, or 0.5%, at $26.83.

Airlines are now expected to report $5.6 billion in losses in 2010, according to the International Air Transport Association, which widened its loss estimate from $3.8 billion. The NYSE Arca Airline Index fell 2.4% even as

Boeing's

(BA) - Get Report

787 Dreamliner

made its first test flight.

Best Buy

(BBY) - Get Report

reported a profit of $227 million, or 53 cents a share. Excluding one-time charges, the company earned 51 cents a share, well ahead of the consensus expectation of a 43-cent profit. Shares, however, slumped 8.5% at $41.53.

--Written by Sung Moss and Melinda Peer in New York

.