Stocks opened lower Wednesday after a report on consumer prices raised concerns about inflation and -- in an already jittery market -- the Federal Reserve's reaction.
The Dow Jones Industrial Average held in range of about 60 to 90 points off its previous close. The Nasdaq and S&P 500 index also skidded.
Consumer prices rose 0.4 percent in January, the second straight increase, amid price inflation across a variety of categories; excluding volatile food and energy costs, core inflation climbed 0.3 percent. Economists had expected a 0.3 percent rise in CPI and a 0.2 percent increase in core CPI.
Higher inflation stirs worry on Wall Street that the Fed may be less inclined to cut interest rates again at its next meeting.
The CPI report is "not good or what the Fed would like to see," said Robert Brusca, chief economist at Fact & Opinion Economics. "We can see energy and food price problems are more than a flash in the pan. But that stubborn core rate could become an issue," Brusca said, noting that the core annual rate is now at 2.5 percent, above the 2.4 percent top of the Fed's comfort zone.
But Diane Swonk, chief economist at Mesirow Financial, told CNBC that, while she's concerned about inflation, she doesn't think this report will influence the central bank's decision at its March meeting. "I think the Fed is in full risk-management mode and is willing to discount these numbers," Swonk said, adding that the moderation in growth should help moderate inflation.
How long can the Fed look past such inflationary numbers?
Swonk said she thinks the Fed will be able to discount such data in March and April, though that will become tougher in the second half of the year.
Housing starts rose 0.8 percent to a 1.012 million annual rate, while permits to break ground on new homes fell 3 percent to the lowest rate in more than 16 years. Both housing gauges were largely in line with expectations.
An earlier report showed that U.S. mortgage applications plunged last week amid a jump in interest rates. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Feb. 15 fell 22.6 percent to 822.8.
Telecom stocks VerizonAT&T led the Dow decliners after the companies, along with T-Mobile, unveiled $99.99 flat-rate plans for unlimited calls. Meanwhile, No. 3 U.S. mobile-service provider Sprint Nextel is expected to counterpunch with a flat-rate plan that is 40 percent lower, analysts said Wednesday.
Hewlett-Packard, the Dow's top gainer, jumped 6 percent after the computer and printer maker reported late Tuesday that its net jumped 38 percent to $2.13 billion, or 80 cents a share, in the quarter ended Jan. 31, amid strong sales from its PC unit and overseas. Excluding items, H-P earned 86 cents a share, surpassing the 81 cents a share analysts had expected. The Palo Alto, Calif., company also raised its fiscal 2008 forecast.
Shares of Crocs, which also reported late Tuesday, tumbled more than 15 percent after the maker of colorful plastic shoes reported a huge jump in profit but issued a bleak outlook for 2008.
That seems to be a theme on Wall Street today: No matter what happened in their quarterly report, if a company faces a challenging quarter and year ahead, investors hammered the stock. Among them were solar-energy company Suntech Power, organic grocery chain Whole Foods, diet company Nutrisystem, surgical-products maker Arthrocare and hospital operator Kindred Healthcare.
Energy stocks came under pressure as oil prices recededfrom highs set Tuesday when crude closed over $100 for the first time. Just before the opening bell, the front-month contract was down more than a dollar at $98.99 a barrel.
ExxonMobil and Chevron , some of the Dow's top gainers on Tuesday, retreated in Wednesday morning trading.
Citigroup plans to sell or close some units in Mexico, Japan and the U.K. amid consumer weakness and a revitalized push to focus on higher-margin businesses, the Wall Street Journal reported.
KKR Financial Holdings , the listed affiliate of private-equity group Kohlberg Kravis Roberts, delayed repayment of debt backed by mortgage securities for the second time.
The Financial Times said in a report on its Web site that Tuesday's move by KKR financial holdings followed a $270 million bailout of the leveraged investment vehicle last September, which saw founders Henry Kravis and George Roberts personally inject cash.
In other sector news, CNBC reported that hedge-fund activist Bill Ackman floated a plan Tuesday to New York State Insurance Superintendent Eric Dinallo that would keep large bond insurers businesses intact.
Ackman's plan would call for the companies to use proceeds from safe municipal bonds to back up losses the companies sustained through bad bets on subprime mortgages. Several of the largest insurers, including MBIA and Ambac, have discussed plans on separating their municipal bonds and collateralized debt obligation businesses.