Associated Press
Saturday, December 15, 2007

NEW YORK, Dec. 14 -- A sharp increase in consumer inflation sent stocks lower and raised concerns Friday about how much freedom the Federal Reserve has to continue cutting interest rates.

Concerns emerged after the Labor Department reported its consumer price index had a bigger-than-expected jump for November, which raised questions about the Fed's options for moving the economy forward.

The Dow Jones industrial average fell 178.11, to 13,339.85. The Standard & Poor's 500-stock index fell 20.46, to 1467.95. The Nasdaq composite index fell 32.75, to 2635.74. The losses added up to Wall Street's worst weekly showing in a month.

Policymakers this week lowered interest rates and announced a plan to align with other central banks and offer loans to pressed lenders around the world. But while it wants to stimulate the U.S. economy and make lending easier among banks wary of faltering debt, the Fed also has to keep a watchful eye on inflation.

Robert Dye, senior economist at PNC Financial Services Group, said the economic readings this week painted a mixed picture for investors, spurring some of the market's volatility.

"If you take the stronger-than-expected economic data we saw this week in the form of retail sales and add to that the inflation data and then combine that with a somewhat ambiguous statement from the Fed, you get a picture as clear as mud," he said.

The uptick in core inflation is unnerving, Dye said, because it makes it harder for the Fed to justify further rate cuts.

Black & Decker fell $6.82, to $73.31.

Citigroup fell 31 cents, to $30.70. The bank announced late Thursday that it plans to move $49 billion in assets from seven structured investment vehicles onto its books to help the SIVs repay their debts.

Countrywide Financial fell 28 cents, to $9.80. Its lending practices are under investigation in California and Illinois.

IntercontinentalExchange rose $4.91, to $185.73. Analysts were upbeat on the exchange operator's decision to close its futures trading floor in favor of an all-electronic platform.