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U.S. stocks, bonds stumble after key economic data is released

U.S. stocks, bonds stumble after key economic data is released

Wall Street stalled Thursday after a battery of reports indicated the economy is stronger than expected and raised concerns that the Federal Reserve might be more aggressive about interest rates next year.
There has been speculation in the market that Fed policymakers might be ready to cut interest rates because the economy appeared to be moderating on course. However, investors believed that better-than-expected reports that measured existing home sales, consumer sentiment, and manufacturing in the Midwest lessened the possibility of a cut.
Moreover, the trio of reports suggested to some that central bankers _ who have left interest rates unchanged during their last four meetings _ might even have to implement a rate hike on further signs the economy is growing too fast. This caused a sell-off in bonds, and stifled a stock market surge that pushed the Dow Jones industrials past the 12,500 mark for the first time on Wednesday.
Even with the prospect that a rate cut isn't in the offing, investors remain positive, analysts said. Still, volume was thin, typical for the week between Christmas and New Year, which means price swings can be exaggerated. The market's real response could come next week when most of Wall Street gets back from vacation.
"You'd expect some kind of correction after these reports, and the fact we're not getting one shows Wall Street is pretty bullish," said Ryan Detrick, equity analyst at Schaeffer's Investment Research. "With the market going up, and not too many sellers out there, we could stay at these levels until we get back next week."
The Dow Jones industrial average fell 9.05, or 0.07 percent, to 12,501.52, after reaching a new trading high of 12,529.88. That's slightly above Wednesday's record close of 12,510.57.
Broader stock indicators slipped. The Standard & Poor's 500 index fell 2.11, or 0.15 percent, to 1,424.73, while the Nasdaq composite index fell 5.65, or 0.23 percent, to 2,425.57.
Despite the dip during the session, major indexes are heading toward double-digit gains for the year. The Dow is now up 16.7 percent this year, while the Nasdaq has risen about 10 percent and the S&P 500 is up 14.1 percent.
Bond yields have fallen to record lows in the past few months, but began to rebound on Wednesday after a better-than-expected government report on new home sales suggested the housing slump could be at the bottom of its decline. It was the first sign this week the economy might be expanding instead of moderating.
The three economic reports on Thursday continued to push rates higher, with the yield on the benchmark 10-year Treasury note rising to 4.69 percent from 4.65 percent late Wednesday.
Oil prices rose after the Department of Energy reported in its weekly inventory report that U.S. crude supplies dropped by 8 million barrels last week. The rise was limited, though, by rising gasoline and heating oil supplies and lagging demand for heating fuels due to mild weather.
A barrel of light sweet crude rose 19 cents to $60.53 on the New York Mercantile Exchange.
Meanwhile, the dollar was lower against other major currencies, while gold prices extended their rally.
Among the reports released early in the session, the Conference Board's index of consumer confidence climbed to 109 this month _ the highest since April. Economists expected a decline to 102.
Bolstering hopes the housing slump has bottomed, the National Association of Realtors reported sales of previously owned homes gained 0.6 percent to a 6.28 million annual rate in November _ besting economist projections for a decline.
Paul Desmond, president of Lowry's Research Reports, said he's not worried about any short-term corrections for stocks. He believes the big picture outlook for stocks is good, and that buyers will not run out of supply anytime soon.
"We have all the major measurements of investor demand being at new highs, and more importantly there is no evidence of any significant amount of selling going on," he said. "We think the markets appear to be heading substantially higher next year."
With little in the way of corporate news, Apple Computer Inc. fell amid reports of a federal probe into the possible forgery of documents to boost executives' profit. Chief Executive Steve Jobs is said to have received 7.5 million stock options in 2001 without proper board approval. Its stock fell 65 cents to $80.87.
International Business Machines Corp. and Siemens AG won a 10-year $9.3 billion contract from the German Federal Armed Forces. The deal calls for the two companies to modernize non-military information and communications technologies.
IBM fell 23 cents to $96.97, while Siemens rose $1.01 to $98.59.
Alcoa Inc. finished unchanged at $30.02 after Morgan Stanley lowered its fourth-quarter estimates due to the strike at the aluminum producer's Cleveland Works facility. There are also concerns about the weak dollar's effect on the company's profit margins.
Declining issues outnumbered advancers by a razor thin margin on the New York Stock Exchange, where volume came to an extremely light 903.3 million shares, compared to 972 million shares on Wednesday.
The Russell 2000 index of smaller companies was down 3.25, or 0.41 percent, at 794.48.