U.S. stocks fell, sending bank shares to their lowest level in eight years, as Federal Reserve Chairman Ben S. Bernanke's warning that inflation is too high spurred speculation policy makers will raise interest rates.
Wachovia Corp. led 20 of 23 companies in the Standard & Poor's 500 Banks Index lower after Bernanke said price stability is the Fed's ``top priority.'' MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, tumbled as Moody's Investors Service said it may cut their credit ratings. Intel Corp. and Cisco Systems Inc. gained, sending the Nasdaq Composite Index to its biggest advance in a week, as an industry report showed stronger-than-forecast growth at service companies.
The S&P 500 lost 0.45 point, or less than 0.1 percent, to 1,377.2. The Dow Jones Industrial Average declined 12.37, or 0.1 percent, to 12,390.48. The Nasdaq added 22.66, or 0.9 percent, to 2,503.14. About the same number of stocks rose as fell on the New York Stock Exchange.
``With Bernanke speaking about inflation, people may be taking it that he's indicating if they can't get it under control the Fed may have to eventually raise rates,'' said Kurt Brunner, a Philadelphia-based money manager who helps oversee about $1.6 billion at Swarthmore Group Inc. ``The way the market has reacted the last couple of days, it seems to me that people are looking for reasons to sell.''
The S&P 500 swung between gains and losses 19 times in the first hour of trading as a rally in technology shares countered declines in banks and energy companies. The market advanced to its highest level of the day after Merrill Lynch & Co. advised clients to buy Lehman Brothers Holdings Inc. shares. Stocks then erased gains after the Moody's announcement and Bernanke's speech, delivered at a Class Day ceremony at Harvard University.
Banks Retreat
Wachovia, the fourth-biggest U.S. bank by assets, lost 34 cents to $21.58, extending its slide over the past month to 28 percent. JPMorgan Chase & Co., the third-largest, fell 26 cents to $41.63. The S&P 500 Banks Index lost 1.2 percent to the lowest level since March 2000.
Bernanke said rising public expectations for inflation are a ``significant concern'' and that policy makers ``need to monitor that situation closely.'' Bernanke didn't comment on the outlook for monetary policy in his remarks. Signs of increasing prices have compelled Fed policy makers to signal in April they'll pause after reducing the benchmark interest rate by 3.25 percentage points since September.
Bond Insurers Tumble
MBIA dropped $1.06, or 16 percent, to $5.63 and Ambac lost 51 cents, or 17 percent, to $2.49. MBIA Insurance Corp.'s insurance financial strength rating may fall to the Aa range, although a drop to the A category is possible, Moody's said in a statement today. Ambac Assurance Corp.'s ranking would probably be lowered to Aa, Moody's said in a separate statement.
Bank of America Corp. dropped 68 cents to $31.99. Merrill analyst Edward Najarian said credit losses will reduce earnings at the second-biggest U.S. bank by assets over the next three years. Najarian cut his 12-month share-price forecast for Bank of America by 3.4 percent to $28.
State Street Corp. lost 53 cents to $70.83. The world's largest money manager for institutions raised $2.5 billion by selling shares at a 1.9 percent discount to the closing price in New York yesterday. State Street sold more than 35 million shares to bolster capital against potential investment losses.
``I don't think you can get a sustainable rally in stocks until you get the finance sector turned around and I just don't see it happening yet,'' said Michael Mullaney, a money manager who helps oversee about $10 billion at Fiduciary Trust Co. in Boston.
Crude's Slide
Chevron Corp. and ConocoPhillips led energy shares to the lowest since May 5. Crude oil fell 1.6 percent to $122.30 a barrel in New York on a government report showing larger-than- expected U.S. fuel supply gains. Gasoline prices tumbled almost 5 percent, while heating oil futures lost 2.6 percent.
Chevron, the second-biggest U.S. oil company, declined $1.82 to $96.04. ConocoPhillips, the third-largest, retreated $2.46 to $89.19. The S&P 500 Energy Index has lost 7.5 percent since reaching an all-time high on May 20, while crude prices have retreated 5.3 percent, on concern demand is waning.
Stocks opened higher after the ISM said its index of non- manufacturing businesses was 51.7 in May, higher than the 51 reading projected by economists in a Bloomberg survey. A separate report from ADP Employer Services showed U.S. companies added 40,000 jobs in May, compared with 13,000 job increases the prior month.
Intel, the world's largest chipmaker, rallied 2.4 percent to $23.48. Cisco, the biggest maker of computer networking equipment, added 1.6 percent to $26.76.
Lehman Rallies
Lehman climbed 79 cents, or 2.6 percent, to $31.40. Merrill analyst Guy Moszkowski wrote in a research note that the stock, which tumbled about 50 percent this year, ``has over-corrected to the downside.'' He raised his recommendation to ``buy'' from ``underperform.''
More than 113 million Lehman shares changed hands in New York today as the stock rallied from a drop of as much as 6.8 percent, making it the most traded U.S. company tracked by Bloomberg for a second straight session.
Walt Disney Co. posted the biggest gain in the Dow average, rising 3.5 percent to $34.35. The second-largest U.S. media company climbed on speculation its ABC broadcast network is commanding advance advertising rates above analysts' estimates.
American Express Co., the largest U.S. credit-card lender, climbed $1.33, or 3 percent, to $45.64. The credit-card company affirmed that profit from continuing operations this year will be $3.51 to $3.61 a share, higher than some analysts expected.
Morgan Stanley Upgrade
Morgan Stanley, the second-biggest U.S. securities firm, increased 71 cents to $43.36 after Wachovia lifted its recommendation on the shares to ``outperform'' from ``market perform.''
``We expect the retail brokerage will be valued higher in this market due to the recurring nature of its revenue streams,'' analysts including New York-based Douglas Sipkin wrote in a note to investors.
Procter & Gamble Co. rose $1.04 to $66.45. J.M. Smucker Co., the maker of Smucker's jams and Jif peanut butter, said it will purchase P&G's Folgers coffee unit for $3 billion to expand its portfolio of food brands in the U.S. J.M. Smucker shares added 12 cents to $53.87.
Advanced Micro Devices Inc. rose 38 cents, or 5.6 percent, to $7.19. The Sunnyvale, California-based chipmaker introduced a set of notebook semiconductors that offer improved graphics.
Guess? Inc. advanced $5.24, or 14 percent, to $43.11 for the biggest gain since November. The clothing maker reported first- quarter profit that exceeded analysts' estimates and forecast full-year earnings may climb more than it previously predicted.
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