U.S. Stocks Retreat on Accelerating Inflation

U.S. stocks fell for a third day, led by financial shares, after the government reported the fastest jump in consumer prices since 1981 and Europe's biggest bank said bad loans are increasing in North America.

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. led the retreat after HSBC Holdings Plc said U.S. bad loan charges and other provisions rose 85 percent and the Commerce Department reported consumer inflation climbed 0.8 percent in June. Freeport-McMoRan Copper & Gold Inc. and Barrick Gold Corp. led mining shares lower as metal prices retreated.

The Standard & Poor's 500 Index lost 6.86 points, or 0.5 percent, to 1,253.45 at 9:56 a.m. in New York. The Dow Jones Industrial Average fell 51.46, or 0.5 percent, to 11,274.86. The Nasdaq Composite Index retreated 13.69, or 0.6 percent, to 2,297.27. Almost three stocks declined for each that rose on the New York Stock Exchange.

The S&P 500 has slumped 14 percent this year as banks' credit losses and asset writedowns topped $480 billion worldwide and the U.S. economic slowdown prompted analysts to cut earnings estimates. Second-quarter profits at the 355 companies in the S&P 500 that reported results so far dropped 20 percent on average, dragged down by losses at financial and consumer companies including Merrill Lynch & Co. and General Motors Corp.

Citigroup, the biggest U.S. bank by assets, slumped 2.5 percent to $18.39. Bank of America, the second-largest, retreated 2.1 percent to $32.62. JPMorgan, the No. 3, slid 1.7 percent to $40.05.

HSBC Holdings Plc said its first-half pretax loss in North America was $2.9 billion, compared with profit of $2.4 billion in the year-earlier period. U.S. consumer bad loan charges and other provisions rose 85 percent to $6.8 billion as the bank reduced its number of branches by 10 percent to 900 and said it would ``run off'' its $13 billion vehicle finance operation. The shares dropped 2 percent in London.

The Federal Reserve is projected to hold interest rates unchanged tomorrow as the risks of both faster inflation and slower growth mount. The Fed's preferred gauge of prices, which excludes food and fuel, climbed 0.3 percent, more than forecast, after a 0.2 percent gain the previous month.

The S&P 500 last week posted its second weekly advance since May, led by energy companies and banks, as oil advanced and investors speculated the worst of the subprime crisis is over.

Financial stocks rallied 4 percent, the most among 10 industry groups in the S&P 500 last week, after the Federal Reserve extended an emergency lending program and the Securities and Exchange Commission prolonged a ban on a type of short sale. Banks, brokerages and insurance companies have rebounded 25 percent since July 15.

U.S. Stocks Retreat on Accelerating Inflation

TradingEconomics.com, Bloomberg
8/4/2008 7:18:15 AM