U.S. stocks ended lower Tuesday, with the Nasdaq composite plunging late in the session. The index, along with the broader market, languished in negative territory throughout the day after a stronger-than-expected retail sales report ignited interest rate fears.
In addition, sharp losses in the bond market weighed on stocks.
"When the bond market sold off, it caused a drastic reaction in the tech sector and the Nasdaq. There is no company news to account for the big drop,� said Alan Skrainka, chief market strategist at Edward Jones.
The Nasdaq composite index tumbled 86.51 points, or 2.36 percent, to 3,571.66. The drop was the seventh largest point loss in the history of the index.
The Dow Jones industrial average fell 32.42 to 11,160.17, and the S&P 500 index retreated 12.05 to 1,403.17.
Breadth was negative on the New York Stock Exchange with losers widely beating gainers 2,024 to 1,069. Trading volume reached a heavy 1 billion shares.
Treasury prices plunged following the retail sales report, with the benchmark 30-year bond losing more than a point, raising its yield to 6.29 percent from 6.19 percent late Monday.
In currency markets, the dollar rose against both the yen and the euro.
Investors digest key economic news
Market participants digested conflicting data on the U.S. economy. The strong retail sales report sparked some interest-rate worries despite a separate report pointing to tame inflation.
Analysts said inflation was holding steady following the Consumer Price Index release. The CPI, a measure of inflation at the retail level, rose 0.1 percent in November, the Labor Department said. The number was less than analysts� expectations of a 0.2 percent gain. The core rate, excluding volatile food and energy prices, rose 0.2 percent, in line with expectations.
But retail sales data were more troublesome. Retail sales advanced at a 0.9 percent pace in November, well above economists� expectations of a 0.5 percent increase, fueling some concerns about rate hikes.
Gary Schlossberg, senior economist at Wells Capital Management, said retail sales were the real surprise. "The retail sales number implies consumer spending is running well above its long-term average,� he said.
The two reports are significant, analysts noted, since they are the last key economic releases that Federal Reserve policy makers will have to consider in determining interest rates at their Dec. 21 meeting.
The economic news particularly weighed on financial stocks. The sector is highly sensitive to interest rates due to the stronger probability of borrowers defaulting on their loans when interest rates rise, therefore hurting corporate earnings.
Among the Dow components, American Express (AXP) fell 5-13/16 to 160-1/2, Citigroup (C) retreated 1-13/16 to 53-1/2 and J.P. Morgan (JPM) declined 3-5/16 to 131-1/4.
Nasdaq tumbles
In a late selloff, the Nasdaq plunged after languishing in negative territory throughout the session. Analysts noted a lack of leadership weighed on the market, particularly in the usually strong technology sector.
"All the sizzling hot stocks are taking a breather. Investors are reluctant to look elsewhere when the hot stocks are down,� said Charles Payne, head analyst at Wall Street Strategies.
The weakness in technology followed the Nasdaq�s 52nd record close of the year Monday. Analysts said many participants were willing to stay on the sidelines.
However, many strategists were unconcerned by Tuesday�s market performance. Michael Carty, stock market strategist at New Millennium Advisors, a New York investment firm, said the losses would not be long lasting.
"The economy is very strong and interest rates are likely to remain stable. There are many stocks out there with strong potential earnings,� he said.
Among the top Nasdaq gainers, 3Com Corp. (COMS), the world's second-largest maker of computer networking products, surged 5-13/16, or nearly 13 percent, to 50-5/8 after the company filed an initial public offering for its Palm Computing unit. Palm makes the No. 1 electronic organizer.
But 3Com rivals suffered. Cisco Systems (CSCO) retreated 3-1/4 to 97-15/16, and Lucent Technologies (LU) dipped 2-1/2 to 77-1/4.
Internet issues were in the red despite reports of some potential partnerships with major retailers. Yahoo! (YHOO) and the nation�s No. 3 retailer Kmart (KM) are expected to unveil an alliance to offer co-branded Internet access, according to the Wall Street Journal. Yahoo! fell 17-15/16 to 333-1/8, while Kmart rose 9/16 to 12-1/16.
The report follows speculation of a potential marketing alliance between America Online (AOL) and Wal-Mart Stores (WMT), the world's No. 1 retailer. AOL slumped 5-3/4 to 88-1/4 and Wal-Mart, a component of the Dow industrials, inched down 15/16 to 67-1/16.
The blue chips benefited from gains to Dow component Microsoft (MSFT). Its stock advanced 2-1/16 to 98-11/16 amid rumors that the world's No. 1 software company may be near a settlement of the U.S. government�s landmark antitrust case. However, a Justice Department spokeswoman told CNNfn the rumors were unfounded.���
