US stocks fall on inflation data, financial worries

NEW YORK: Stocks fell sharply on Tuesday after a hefty jump in wholesale inflation and a drop in new home construction gave investors more reasons to believe the economy won’t rebound anytime soon. The Dow Jones industrial average dropped by more than 100 points.
The Labor Department said its Producer Price Index rose by 1.2 percent in July, more than double the expected rate. The increase means prices have risen in the past 12 months at the fastest pace in 27 years.
The data also showed that core wholesale inflation, which excludes food and energy prices, rose 0.7 percent — the biggest increase since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected.
“Maybe investors were hoping to shrug off the challenges of high commodity prices and inflation,” said Jack A. Ablin, chief investment officer at Harris Private Bank. “But now we find out that perhaps the inflation situation is worse than we thought.”
A weak report on new home construction did little to quell investors’ worries. The Commerce Department said July housing starts fell to an annual rate of 965,000 units — higher than analysts predicted, but the lowest level in more than 17 years nonetheless.
Tuesday’s pair of economic reports indicated not only that the financial sector is struggling to right itself after billions of dollars in credit losses, but also that the rest of the economy is still showing significant signs of stress.


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