WASHINGTON (dpa-AFX) - Largely reflecting a negative reaction to hotter-than-expected U.S. inflation data, stocks have moved sharply lower during trading on Tuesday. The major averages have all shown significant moves to the downside, with the Dow pulling back well off yesterday's record highs.
The major averages have climbed off their worst levels in recent trading but remain firmly negative. The Dow is down 462.33 points or 1.2 percent at 38,335.05, the Nasdaq is down 215.84 points or 1.4 percent at 15,726.71 and the S&P 500 is down 59.56 points or 1.2 percent at 4,962.28.
The sell-off on Wall Street comes following the release of a highly anticipated Labor Department report showing consumer prices in the U.S. increased by slightly more than expected in the month of January.
The Labor Department said its consumer price index rose by 0.3 percent in January after inching up by 0.2 percent in December. Economists had expected consumer prices to edge up by 0.2 percent.
While the report also showed the annual rate of consumer price growth slowed to 3.1 percent in January from 3.4 percent in December, economists had expected the pace of growth to slow to 2.9 percent.
Excluding food and energy prices, core consumer prices climbed by 0.4 percent in January after rising by 0.3 percent in December. Core prices were expected to increase by 0.3 percent.
The annual rate of core consumer price in January came in unchanged from the previous month at 3.9 percent. The pace of core price growth was expected to decelerate to 3.7 percent.
With Federal Reserve officials repeatedly saying they need more 'confidence' inflation is slowing before lowering interest rates, the data has further reduced optimism about a near-term rate cut.
CME Group's FedWatch Tool is currently indicating just an 8.5 percent chance of a quarter point rate cut in March, while the chances of a quarter point rate cut in early May have fallen to 37.6 percent.
Quincy Krosby, Chief Global Strategist for LPL Financial, called the report a 'disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later.'
'This report underscores the Fed's messaging that they'll need more information specifically inflation-related data before a policy transition,' Krosby said. 'The 'last mile' - as expected - is proving to be stickier and more stubborn inhibiting even the most dovish wing of the FOMC.'
Treasuries yields have surged in response to the data, with the yield on the benchmark ten-year note reaching its highest levels in two months.
Gold stocks have shown a substantial move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 5.3 percent to a four-month intraday low.
The sell-off by gold stocks comes amid a steep drop by the price of the precious metal, with gold for April delivery tumbling $28.80 to $2,004.20 an ounce.
Significant weakness is also visible among networking stocks, which have pulled back sharply after surging in the previous session.
After jumping by 2.5 percent during Monday's trading, the NYSE Arca Networking Index has plunged by 3.8 percent.
Interest rate-sensitive housing stocks are also seeing considerable weakness, as reflected by the 3.5 percent slump by the Philadelphia Housing Sector Index.
Commercial real estate, transportation and banking stocks have also showing notable moves to the downside, moving lower along with most of the other major sectors.
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Tuesday, with markets in Hong Kong and mainland China still closed for holidays. Japan's Nikkei 225 Index surged by 2.9 percent, while Australia's S&P/ASX 200 Index dipped by 0.2 percent.
Meanwhile, the major European markets have all moved to the downside on the day. While the U.K.'s FTSE 100 Index is down 1.0 percent, the French CAC 40 Index is down by 1.1 percent and the German DAX Index is down by 1.2 percent.
In the bond market, treasuries have moved sharply lower in reaction to the U.S. inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 10.1 basis points at 4.273 percent.
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