Blue-chip stocks fall as inflation worry rises

NEW YORK (Reuters) - U.S. blue-chip stocks ended lower on Thursday, after economic data on prices and spending sparked new inflation concerns and pushed Treasury yields to their highest level in nearly two years.

Home builders, financial services companies and other interest-rate-sensitive stocks fell on fears that earnings will suffer as the cost of borrowing money increases.

Shares of Citigroup Inc. (NYSE:C - news) and Bank of America Corp. (NYSE:BAC - news), the two largest U.S. banks, were two of the biggest decliners in the S&P 500.

"Today's a function of what's happening in bond yields," said Sam Rahman, portfolio manager at Baring Asset Management Inc. He noted that bond yields rose after the morning's government data, which included an index tracking personal spending that "looked inflationary. It's having a broad dampening effect on all stock groups, but retail, financials, utilities are especially pressured."

The Nasdaq eked out a slim gain as fund managers sought to add technology shares to their portfolios before the quarter ends.

The Dow Jones industrial average (^DJI - news) slid 65 points, or 0.58 percent, to end at 11,150.70. The Standard & Poor's 500 Index (^SPX - news) declined 2.64 points, or 0.20 percent, to 1,300.25. The Nasdaq Composite Index (^IXIC - news) gained 3.04 points, or 0.13 percent, to close at 2,340.82.

The Nasdaq's small gain "might be window dressing in favor of techs and unloading of blue chips at this time," said Peter Cardillo, chief strategist at SW Bach & Co.

The stock of manufacturer 3M Co. (NYSE:MMM - news) gave back all gains from the previous day's session when it had risen on a brokerage upgrade. It was one of the Dow's biggest decliners and closed at $76.52, down 1.3 percent, or $1.04, on the New York Stock Exchange.

A jump in U.S. oil futures prices also weighed on stocks.

U.S. crude oil for May delivery gained 70 cents, or 1.1 percent, to settle at $67.15 a barrel as Iran, a major oil exporter, said it would not comply with the U.N. Security Council's request that it stop its uranium enrichment programs.

BAD DAY FOR BANK STOCKS

Citigroup shares fell 0.7 percent, or 35 cents, to $47.28, while Bank of America's stock declined 0.8 percent, or 36 cents, to $45.61 on the New York Stock Exchange. Citigroup also weighed on the Dow. The Philadelphia KBW index of bank shares (^BKX - news) fell 0.6 percent.

Beazer Homes USA Inc. (NYSE:BZH - news) was down 2 percent, or $1.32, at $65.84, while shares of Hovnanian Enterprises Inc. (NYSE:HOV - news) fell 2.3 percent, or $1.04, to $44.05. The Dow Jones home builders index (^DJUSHB - news) was down 1.4 percent.

Before the market opened, the Commerce Department released data on fourth-quarter Gross Domestic Product that showed a core inflation measure -- the price index for personal spending excluding food and energy -- was revised higher.

The benchmark 10-year U.S. Treasury note was down 14/32, with the yield at 4.86 percent, after earlier hitting 4.888 percent -- its highest level since June 2004, when the Fed began raising rates from historic lows.

Gold, often used by investors as a hedge against inflation, climbed to a 25-year high in New York. COMEX gold for June delivery hit $592 an ounce -- the highest futures price since January 1981 -- in Thursday morning trading. Late in the session, June gold was up $13.20 at $591.80 an ounce.

SYMANTEC SURGES, GOOGLE DROPS

Software makers buoyed the Nasdaq, with Symantec Corp. (Nasdaq:SYMC - news) shares up 6.6 percent, or $1.05, at $17.05 and Microsoft Corp. (Nasdaq:MSFT - news) up 0.8 percent, or 21 cents, at $27.23. Shares of video game maker Electronics Arts Inc. (Nasdaq:ERTS - news) rose 3 percent, or $1.59, to $54.19.

But Google Inc. (Nasdaq:GOOG - news) was the biggest drag on the Nasdaq after the Web search company said it would sell more shares worth $2 billion. Google shares fell 1.7 percent, or $6.54, to close at $388.44.

Trading was active on the NYSE, with about 1.61 billion shares changing hands, matching last year's daily average, while on Nasdaq, about 2.21 billion shares traded, above last year's daily average of 1.80 billion.

Declining stocks outnumbered advancing ones by a ratio of almost 4 to 3 on the NYSE while on the Nasdaq, gainers and losers were nearly evenly matched.