Stocks Slump on Rate Hike Worries, Tech Selling

NEW YORK ( TheStreet) - The Dow Jones Industrial Average finished on a flat note on Thursday, overcoming early weakness on concerns about global interest rate hikes.

The blue-chip index dipped 2 points, or 0.02%, to close at 11,823, bouncing nearly 80 points off its session-low of 11,744. The S&P 500 followed a similar pattern, losing a little more than a point, or 0.1%, to finish at 1280, which was well off the day's low of 1271. The Nasdaq Composite, however, shed 21 points, or 0.7%, to settle at 2704, falling sharply for a second-straight session.

Caterpillar ( CAT) and DuPont ( DD) were among the worst performers on the Dow. Sentiment within the index was negative with decliners outpacing advancers, 18 to 12.

General Electric ( GE), which reports its quarterly results before Friday's opening bell, Home Depot ( HD), JPMorgan Chase ( JPM) and Wal-Mart ( WMT) posted the biggest percentage gains among the blue chips.

After the closing bell, Google ( GOOG) reported a fourth-quarter profit of $2.54 billion or $7.81 per share. Excluding items, earnings came in at $8.75 per share for the December period, topping Wall Street's consensus estimate of $8.10 a share. The company also said co-founder Larry Page would assume the role of the CEO, while Eric Schmidt will become chairman. Shares were rising 2% in aftermarket trading.

Also late Thursday Dow component Hewlett-Packard ( HPQ) announced a board shake-up after the bell, appointing five new directors, including two former high-profile tech CEOs.

U.S. markets got off to a rough start Thursday after Brazil hiked interest rates 50 basis points to 11.25% after the country's inflation hit 6% in 2010. Investors then got cause to worry that China could soon follow suit on news that its economy grew a greater than expected 9.8% in the fourth quarter of 2010 .

Growth in emerging markets has fueled the commodity boom and higher interest rates could put the brakes on demand.

Gold prices came under pressure Thursday with the February gold contract dropping $23 to settle at $1,346.50 an ounce. Copper futures were off by 10 cents at $4.25 an ounce. Crude oil futures slipped below $90 for the first time in over a week, with the March contract dropping by more than 2% to $89.59.

"We've gone from the beginning stages of a recovery to the middle stages, and what typically happens is a lot of central banks start tightening because they begin to worry that their economies are heating up too fast," says Brian Gendreau, a market strategist with El Segundo, Calif.-based broker-dealer firm Financial Network, adding that the United States hasn't reached that stage yet.

Gendreau notes that a recent report from JPMorgan's economics department forecast that 28 of the 32 central banks they cover will likely hike rates soon. "That's about as good an indicator as any that we're shifting from seeing easing moves to more tightening," he says.

Volume on the New York Stock Exchange reached 1.1 billion, while 2.3 billion shares changed hands on the Nasdaq. Only 34% of stocks on the Big Board finished in the positive territory while 63% declined.

Global growth concerns overshadowed mostly positive economic news in the U.S. on Thursday. The Labor Department said initial jobless claims shed 37,000 to 404,000 in the week ended Jan. 15, from 441,000, previously. The drop was larger than the decline of 20,000 claims that analysts had expected.
Unemployment

The National Association of Realtors said existing-home sales jumped 12.3% to 5.3 million in December compared with November's level of 4.7 million. The market had been expecting a milder increase to 4.8 million units, according to Briefing.com.

Leading indicators rose 1% in December, the Conference Board said, after increasing 1.1% in November. The growth exceeded expectations for a December uptick of 0.6%.

Manufacturing activity in the Philadelphia region was slightly weaker than Wall Street had expected as the Philly Fed index came in at 19.3 in January, falling short of expectations for a reading of 20. That compares to December's level of 20.8, which was downwardly revised from 24.3.

In early earnings news, Morgan Stanley ( MS) reported adjusted earnings from continuing operations of 43 cents a share, topping the profit of 35 cents a share that Wall Street had forecast . Revenue was also better than expected at $7.8 billion, compared with the $7.4 billion expected by analysts. The stock gained 4.5% at $29.02.

Shares of Fifth Third Bancorp ( FITB) fell 2.6% at $14.22 despite beating analysts' estimates as the financial services company announced plans to raise $1.7 billion through a public offering to repay the Troubled Asset Relief Program .

A surge in copper prices helped Freeport McMoRan ( FCX) top analysts' forecasts for earnings of $2.88 a share with a fourth-quarter net profit of $3.25 a share. Sales of $5.6 billion also exceeded expectations for fourth-quarter sales of $5.5 billion. The stock, however, was down 3.7% at $110.90.

Shares of eBay ( EBAY) rose 5.8% to $30.78 after it reported better-than-expected results.

Shares of MannKind ( MNKD) plunged 33% to $6.17 after U.S. regulators rejected its inhaled insulin delivery device Afrezza for the second time, telling it to conduct two more clinical trials before resubmitting its application.

A major drag on sentiment within the tech sector was F5 Networks ( FFIV) whose shares dropped 21% to $109.15 after the company fell short on revenue in its latest quarter and issued a disappointing outlook.

This misstep by a former high-flier -- F5 gained more than 150% in 2010 -- prompted investors to sell shares of the competition, including names like Riverbed Technology ( RVBD), down 4%, and Juniper Networks ( JNPR), off 5%, among others.

Shares of Dillard's ( DDS) were up 12% to $41.96 on its plans to form a REIT unit .

Other retailers including J.C. Penney ( JCP) and Lowe's ( LOW) also gained.

The dollar strengthened against a basket of currencies, with the dollar index up by 0.4%. The benchmark 10-year Treasury note fell 19/32, lifting the yield to 3.410%.

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Hong Kong's Hang Seng lost 1.7%, and Japan's Nikkei declined 1.1%. London's FTSE was fell 1.8% and the DAX in Frankfurt dropped 0.8%.

--Written by Melinda Peer and Shanthi Bharatwaj in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.