Stocks sold off Friday after a jump in consumer inflation raised concerns about how much freedom the US Federal Reserve has to continue cutting interest rates. The Dow Jones industrial average gave up more than 178 points.
The Labor Department said the consumer price index rose 0.8 percent in November amid a spike in gasoline prices. The report also found large increases in the cost of clothing, airline tickets and prescription drugs.
The report raises questions about the Fed's options for priming the economy. The Fed last week lowered interest rates and announced a plan to align with other key central banks and offer loans to pressed lenders around the world. But while it wants to stimulate the US economy and make lending easier among banks wary of faltering debt, the Fed also has to keep a watchful eye on inflation.
The uncertainty weighed on the markets Friday, a day after stocks finished mixed. The Dow Jones industrial average fell 178.11, or 1.32%, to 13,339.85.
Broader stock indicators also fell. The Standard & Poor's 500 index dropped 20.46, or 1.37%, to 1,467.95, and the Nasdaq composite index fell 32.75, or 1.23%, to 2,635.74.
Friday's report on inflation follows a reading Thursday that showed the biggest jump in inflation at the wholesale level in 34 years.
The 0.8% increase in consumer prices topped the 0.6% rise economists had been expecting. The report also showed so-called core inflation, which excludes often-volatile food and energy prices, had its biggest increase in 10 months, rising 0.3%.
Also Friday, the Federal Reserve said industrial production rebounded in November, increasing 0.3% after a steep 0.7% decline in October. The increase came in slightly ahead of Wall Street's expectations.
Stocks rose as investors snapped up some bargains and maintained a positive take on the prospects for markets in 2008.
The UK's FTSE 100 Index added 0.5% to 6,397.0, while France's CAC-40 Index advanced 0.3% to 5,605.36. Germany's DAX Index jumped 0.3% to 7,948.36.
A day earlier, European shares had slumped the most since November 21 on worries that a unified plan by global central banks to aid financial markets won't be enough to pull growth out of a hole.
Most Asian fell on a mixture of regional factors, from expectations China may raise interest rates soon to signs of growing pessimism among Japanese corporate executives.
Lingering worries about fallout from the subprime mortgage crisis in the US, a vital export market, continued to weigh on sentiment.
In Tokyo, the benchmark Nikkei 225 stock index fell 22.01 points, or 0.14%, to 15,514.51 points, bringing its three-day loss to 3.3%.
Investors were disappointed by the Bank of Japan's quarter "tankan" survey that showed confidence at major Japanese companies has fallen to its lowest in more than two years amid worries about the strong yen and higher oil prices. The survey's most-watched number, the sentiment index for large manufacturers, fell from 23 last quarter to 19, the lowest since September 2005.
The dollar gained more ground against the euro on Friday after strong US data suggested that the Fed may not need to act again soon to cut interest rates, which would have lowered the yield on dollar-denominated investments.
In afternoon New York trading the euro bought $1.4425, down nearly 2 US cents from $1.4624 the night before. The British pound dropped to $2.0154 from $2.0387 in New York, while the dollar rose to purchase 113.42 Japanese yen from 112.20 yen the night before.
The US currency fell to 1.0187 Canadian dollars from 1.0207 Thursday.
Gold prices tumbled Friday as the dollar strengthened on expectations that rising inflation will keep the Federal Reserve from lowering interest rates further, despite an economic slowdown.
February gold lost $6 to settle at $798 an ounce on the New York Mercantile Exchange, following a nearly $15 per ounce drop a day earlier. March silver fell 25.4 cents to $13.983 an ounce.
Oil prices fell amid concerns that rising inflation could put the squeeze on consumers and crimp energy demand. The Labor Department's report showed gas prices at the pump surged 9% in November.
Light, sweet crude for January fell 98 cents to $91.27 a barrel on the Nymex.
Gasoline futures shed 3.27 cents to settle at $2.3417 a gallon, while heating oil futures fell 0.68 cent to $2.6079 a gallon.
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