US stocks slip after economic, earnings data

NEW YORK -- The stock market slid Tuesday, giving up early gains as investors digested a mixed batch of reports showing rising inflation, uneven corporate performances in the first quarter and a surprising rebound in New York manufacturing.

After a recent spate of disappointing readings on the economy, investors were pleased the New York Federal Reserve reported that regional manufacturing expanded modestly in April, after shrinking at a record clip in March. Economists, on average, had been expecting another contraction.

And in a positive sign for earnings, health care products maker Johnson & Johnson said its first-quarter profit jumped 40 percent on rising sales and a slight decline in costs. Results from the maker of consumer staples ranging from baby shampoo to drugs came as a relief to investors, following a spate of mostly disappointing earnings reports last week and Monday.

But the market remains anxious about inflation. As crude oil prices surged to a record near $114 a barrel, the Labor Department's Producer Price Index registered a much higher-than-anticipated 1.1 percent rise for March. The core index, which strips out food and energy prices, rose by 0.2 percent, as expected. Core producer price increases have slowed over the past three months, so most investors are not too worried that inflation will keep the Federal Reserve from lowering interest rates again if the economy weakens further. However, food and energy prices keep rising, so consumers have been paring back their discretionary spending to afford necessities -- and that is hurting corporate profits.

"My guess is people are still really concerned about the inflation impact down the road. If oil stays where it is, it's going to be a problem," said Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher in Minneapolis. But, he added, Johnson and Johnson's earnings were a refreshing surprise, and given everything that has happened with the global financial system and the economy, the stock market has not fallen a full 20 percent from its highs -- which would indicate a bear market.

"There's no shortage of things to worry about, but it seems to me that most people in equities have thought about selling or have sold. There's a much larger population that's sold than not," Dow said. "It's a time when if you're willing to be patient, there are some pretty attractive valuations right now."

In late morning trading, the Dow Jones industrial average fell 21.34, or 0.17 percent, to 12,280.72.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 0.46, or 0.03 percent, to 1,328.78, and the Nasdaq composite index fell 4.29, or 0.19 percent, to 2,271.53.

Delta Air Lines Inc.'s and Northwest Airlines Corp.'s combination to create the world's largest carrier weighed on the stock market. Delta fell 99 cents, or nearly 9.5 percent, to $9.49, while Northwest fell 48 cents, or nearly 4.3 percent, to $10.74, with investors uneasy about the stock-swap deal and the prospects for the airline industry.

Two Nasdaq stocks -- Crocs Inc. and Affymetrix Inc. -- dragged on the index after both lowering their forecasts. Crocs, the casual footwear company, sank $7.14, or 40 percent, while Affymetrix, the genetic analysis product maker, tumbled $5.88, or 36 percent, to $1.045.

Bond prices dipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.55 percent from 3.51 percent late Monday.

Gold prices rose, while the dollar fell against other major currencies.

The Russell 2000 index of smaller companies fell 0.93, or 0.14 percent, to 685.14.

Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange, where volume came to 398.2 million shares.

Overseas, Japan's Nikkei stock average rose 0.77 percent. Britain's FTSE 100 rose 1.02 percent, Germany's DAX index fell 0.12 percent, and France's CAC-40 slipped 0.01 percent.

(Agencies)