Stocks pulled back Tuesday after two reports showed that core wholesale prices shot up more than expected last month and that consumer confidence is waning.
The data together reinforced worries that the United States is suffering from stagflation, a state when the economy weakens amid rising costs.
The Conference Board's index of consumer confidence plunged in February to 75.0 from a revised 87.3 in January. The reading was the lowest since the index registered 64.8 in February 2003, came in far below analysts' average estimate. Though the report is not a perfect predictor of consumer spending, it suggests Americans are watching their budgets.
Meanwhile, the latest wholesale inflation report showed headline producer prices rising by a full 1 percent in January, driven up by higher energy prices and soaring food costs.
The result was a bit below the 1.1 percent advance projected by Thomson/IFR, but core PPI _ which excludes food and energy prices _ rose 0.4 percent, steeper than the predicted 0.3 percent gain. The data was disconcerting because the Federal Reserve is known to closely monitor core-level inflation in setting monetary policy.
In midmorning trading, the Dow Jones industrial average fell 33.79, or 0.27 percent, to 12,536.43.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 5.63, or 0.41 percent, to 1,366.17, and the Nasdaq composite index fell 9.21, or 0.40 percent, to 2,318.27.
Government bonds rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.89 percent from 3.91 percent late Monday.
Stocks had rallied Monday after ratings agency Standard & Poor's affirmed investment grade "AAA" ratings for bond insurers Ambac Financial Group Inc and MBIA Inc.
Market sentiment in recent sessions has been influenced to a large degree by the plight of the insurers who appear undercapitalized and could have trouble paying back bond holders if default levels are too high.
In other corporate news, Tenet Healthcare, the hospital operator, said its fourth-quarter losses narrowed sharply thanks to new contracts, higher admissions and cost-cutting. Tenet rose 50 cents, or 11.7 percent, to $4.78.
Rite Aid Corp. also jumped Tuesday, after an analyst upgraded the pharmacy chain and said a recent stock drop makes its risk and reward profile more favorable. Rite Aid rose 26 cents, or 10 percent, to $2.87.
The dollar fell against most other major currencies. Gold prices edged higher.
The Russell 2000 index of smaller companies rose 1.25, or 0.18 percent, to 711.71.
Declining issues outnumbered advancers by a small margin on the New York Stock Exchange, where volume came to 266.6 million shares.