NEW YORK -- U.S. stocks fell yesterday as rising commodity prices and a slump in the dollar heightened concern that faster inflation will lead to higher interest rates, traders said.
Stocks also suffered from concern that the Federal Reserve has tightened the reins on the economy too much in its efforts to subdue inflation, threatening future corporate earnings.
"The dollar getting pounded, and gold and oil being strong is creating an inflationary scare," said Thomas Gallagher, head trader at Oppenheimer & Co. "At the same time, something sort of unheard-of up until this point is happening: the weakness in the economy has gotten people scared about recession."
The Dow Jones industrial average fell 16.25, to 4,179.13, after rising 8.65 points earlier in the day. Boeing Co., AlliedSignal Inc. and International Paper Co. led the decline. Declining issues outpaced advancing shares about three to two.
Boeing Co.'s stock fell $1.75, to $53.50, amid concern that the plane manufacturer will not be able to maintain its stellar first-quarter performance, analysts said. "This is the first quarter in a while in which orders exceeded deliveries," said Peter Aseritis, an analyst at CS First Boston Corp. That has sent the stock up about $10 over the past two months.
Gains in household product shares helped counter the overall decline, after Salomon Bros. Inc. rated Procter & Gamble Co. and Clorox Co. "buy" in initial coverage. Consumer product stocks typically do well when the economy cools down, because sales of food, drugs and cleaning detergent don't taper off with the economy. Procter & Gamble's shares climbed $1.25, to $67.875. Clorox stock was up 12.5 cents, to $58.875.
International Paper's stock continued to slide, dropping $1.125, to $72, after Stone Container Corp. yesterday said it will expand seven of its 12 U.S. containerboard mills to increase production, raising concern profits might be squeezed. Investors also reacted to a rise in containerboard inventories, which suggested future sales might slow. Stone dropped $1.50, to $19.875.
Among broader market measures, the Standard & Poor's 500 stock index slid 0.76, to 505.37, after a 1.52-point rise earlier in the day.
Losses in drug, chemical and telephone issues offset gains in oil, beverage and health care shares.
Eli Lilly & Co. slipped $1.75, to $76, pulling down other drug issues, after Prudential Securities lowered its rating on the drug company to "hold" from "buy." The stock had risen 18 percent since the beginning of February, to reach a 52-week high Monday.
The Nasdaq composite index, which Thursday reached its ninth record high for the year, fell 5.08, to 825.74, as Microsoft Corp., Cisco Systems Inc. and U.S. Healthcare Inc. lost.
Big Board trading was up to 345.2 million shares from 355 million shares yesterday -- and above the daily average of 318.5 million shares.