Inflation Fears Return to Wall Street

Home sales are improving and consumer confidence is the best it's been in four years, but Wall Street didn't celebrate today.

Stock prices fell and interest rates on bonds took their biggest jump since last July as traders looked at the fine print in the two reports and didn't like what they saw.

While sales of existing homes grew after three, down months in a row, the number of people putting their houses up for sale also grew.

The bottom line is that the backlog of unsold houses is growing. At the rate they're selling now, it would take almost five months to move all the homes that are on the market--and that's if no new homes are listed for sale.

The consumer confidence report from the Conference Board was deemed worrisome for other reasons--exhuberent consumers threaten to fuel inflation.

The closely-watched consumer sentiment gauge climbed to its highest level in four years, with an unexpected jump last month.

The inflation threat implicit in that report immediately pushed up interest rates. The 10-year government bond, which serves as the benchmark for other bonds and loans jumped almost one-tenth of a percentage point to 5.07 percent--its highest in almost four years.

Upward pressure on interest rates is so strong that several economists today predicted the Federal Reserve will crank up rates to 5.5 percent--which is a quarter of a point higher than most experts had been predicting.

The stock market responded by knocking down prices--starting with utility companies and other industries that are considered sensitive to higher interest rates.

The Dow Jones industrial average dropped 53 point to 11,283.25. The Nasdaq Stock Market composite index fell 3 points to 2,330.30. The Standard & Poor's 500 stock index slid 6 points to 1,301.74.