Stocks closed mixed after the January consumer inflation report and higher commodity prices weighed on the broader market.
Stocks traded mostly lower all session on inflation jitters following higher-than-expected consumer prices. Buying in energy and materials helped to provide a floor of support. Shares of Apple and Google were higher, helping to drag the Nasdaq over the flatline.
"I think the stock market was more adversely affected than the long end of the interest rate market, but stocks have had such a nice run, I think people just used the Consumer Price Index as an excuse to take some money off of the table," Lou Brien, strategist at DRW Trading Group, told CNBC.com.
"You're seeing a mixed pattern in the market with great strength in metals and energy stocks and mixed performance everywhere else," Michael Metz, chief investment strategist at Oppenheimer, told CNBC.com. "The real excitement has been in the commodity pits with rises in the price of corn, gold and oil."
"This market has a great deal of resilience," Arthur Hogan, Managing Director at Jefferies, told CNBC.com. "There's nothing really bringing us up. I think the sellers just ran out of steam. The year-over-year CPI number is still higher than the Fed wants, but I think traders are saying, 'Let's not get overly concerned.'"
Commodities were a big winner with crude oil topping $60 a barrel, gold trading at a 9-month high and corn hitting a 10-year high.
Energy and materials were the best performing S&P 500 sectors. Hewlett-Packard was the biggest decliner on the Dow. The Dow Transports provided a bright spot, hitting another intraday high.
The markets got off to a negative start right from the open after consumer inflation data came in hotter-than-expected.
"There has been a lot of expectation that the Fed would be on hold for a long time," Kevin Caron, market analyst at Ryan Beck, told CNBC.com. "So this increase, particularly in the core rate, would be something that would understandably upset the market."
"Given that we've seen quite a run and credit markets are accepting a lot of risk for not a lot of return, it wouldn't be surprising to see a bit of a correction in the markets," said Caron.
The Labor Department said the January consumer price index rose 0.2%, while the core increased by 0.3%. Economists expected the CPI to rise 0.1% last month, with the core CPI, which excludes food and energy prices, rising 0.2%.
For those scoring at home, this will be the first time that the Bureau of Labor Statistics will report the CPI figure to three decimal places, to improve precision. (The BLS has the full explanation here.)
Treasury prices fell on the release of the CPI, sending yields higher.
In addition, the Conference Board released its index of leading economic indicators shortly after trading began, saying the index rose 0.1%. Economists had predicted a 0.2% gain in January, compared with December.
Minutes from a January Federal Open Market Committee meeting showed Fed officials remain concerned about core inflation and they still say additional firming is possible. The minutes, however, ultimately had no impact on the markets.
The economy was also in focus in Asia, where the Bank of Japan raised interest rates to 0.5%, a level not seen in a decade. The dollar rose against the yen following the interest rate hike.
Shares of NovaStar Financial plunged on renewed fears about subprime mortgage lending. The company announced it swung to a fourth-quarter loss, joining a slew of mortgage lenders to be hit by rising defaults on loads to people with weak credit. The company also said it may change its status as a real-estate investment trust due to its earnings outlook.
Shares of Dow component Hewlett-Packard fell. The PC and printer maker reported quarterly profit and sales that beat analysts' expectations after the bell Tuesday, but it seems investors are expecting an even better performance to justify the current stock prices. H-P shares are up more than 30% over the last year.
Discount apparel store operator TJX Companies helped to drag down retail shares after the company said fiscal fourth-quarter net income fell 29%, due to a charge from closing 34 A.J. Wright stores.
JetBluerevised its earnings guidance after service disruptions resulting from last week's ice storm in the New York City area. The airliner now expects to report a first-quarter operating margin between -4% and -2%, based on an assumed aircraft fuel cost of $1.89 per gallon. The company received some good news today from Merrill Lynch, which upgraded the stock to buy from neutral.
And Renault and Nissan are reportedly not interested in buying DaimlerChrysler's Chrysler unit. DaimlerChrysler shares were trading lower.
New York light crude futures traded higher on news a leak shut a fuel pipeline in the Northeast. Traders also anticipated the release of inventory data on Thursday.
European Stocks Close Lower
European stocks started well, but dropped significantly after the release of the CPI in the U.S. In the Netherlands, Heineken posted a 13% rise in operating profit, meeting market expectations. But the stock fell.
In Paris, French power company EDF rose, despite reporting lower-than-expected core earnings. The company reiterated its financial targets for the next two years and proposed a dividend increase. The CAC-40 finished lower.
Also in focus, Arcelor Mittal reported 2006 earnings before interest, taxes, depreciation and amortization of $15.3 billion, slightly below market expectations, but in line with its own forecast and also forecast a growth in first-quarter EBITDA. Shares in the steelmaker rose.
In London, mining company Anglo American is set to return $3 billion to investors, having posted a 46% rise in annual net profit, meeting expectations. The FTSE-100 closed lower. In addition, the Bank of England released the minutes of its last meeting, revealing the board voted seven to two in favor of keeping rates on hold at 5.25%.
The DAX which had been flat, hovering around the psychological 7,000 level in German trading, also closed lower.
Asia Mixed on BOJ Rate Rise
Asian markets were mixed, with the Nikkei 225 Average finishing lower after the Bank of Japan raised interest ratesto a decade high of 0.5%.
The Topix, Japan's broadest stock index closed at its highest level in more than 15 years, but the Nikkei 225 Average edged lower after the BOJ raised interest rates. Shares of Mizuho Financial Group and other banks gained on hopes that rising interest rates would improve their lending margins.
South Korea's Kospi Index finished lower, its first fall in six sessions, pausing in a push towards a record high, as recent high flyers such as Shinhan Financial fell on worries the advances had come too quickly.
Australia's S&P/ASX 200 Index closed lower as investors turned cautious, with the big miners leading the way down and Brambles Industries falling on disappointing earnings. Worries over interest rates also dented market sentiment after Australia's top central banker said rates were more likely to rise than fall in the months ahead, though past rate increases would contain inflation.
Singapore's Straits Times Index scaled new heights, led by Singapore Exchange on hopes of robust market volumes, and lenders such as United Overseas Bank, which hit a new record.
Hong Kong blue chips rose following Wall's Street's advance, with China Mobile leading the way after it posted an increase in subscribers, but mainland banks were under pressure after Beijing raised their required reserves.