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Stocks drop amid GDP surge

Renewed inflation fear linked to decline in all major indexes

SHARE Stocks drop amid GDP surge

NEW YORK — Technology stocks slid again Friday, hurtling the NASDAQ composite index down 10 percent for the week. The broad market also fell after the government's gross domestic product figures suggested that inflationary pressures might not be easing after all.

The NASDAQ, down nearly 200 points in late trading, ended the day off 179.23 at 3,663.00, down 431 points for the week and the lowest finish since June 1.

The Dow Jones industrial average fell 74.96 to 10,511.17, a loss of 222.39, or about 2 percent for the week.

Among other broad-market indicators, the Standard & Poor's 500 fell 29.73 to 1,419.89, and the Russell 2000 index of smaller companies fell 11.39 to 490.22.

Before trading began, the Commerce Department reported that the U.S. economy as measured by the GDP grew at a robust annual rate of 5.2 percent in the spring. A surge in investment by American businesses offset a slowdown in consumer spending.

However, an inflation gauge tied to the report and favored by Federal Reserve officials showed that prices rose at an annual rate of just 2.3 percent in the second quarter, down from a first quarter rate of 3.5 percent.

Even so, the unexpected acceleration in activity during the second quarter came as a surprise to economists, compounding concerns raised a day earlier by reports showing large increases in employment costs and big-ticket factory orders.

Unless mitigated by signs of slowing before the next Fed meeting on Aug. 22, the latest economic readings might force the central bank to boost interest rates again in a bid to slow the economy and contain inflation.

"The report provides fuel for both sides of the Fed debate," said Scott Brown, an economist for Raymond James & Associates in St. Petersburg, Fla. But Fed Chairman Alan Greenspan "should be happy with this report," he added, predicting that interest rate policy "is likely to stay on hold."

Network equipment makers were prominent among the day's big decliners with Cisco Systems falling $5.188 to $62.813 as the most active NASDAQ issue.

Likewise, JDS Uniphase slid $12.375 to $116.25 amid news that Royal Philips Electronics had sold 5 million of its JDS shares. And Nortel Networks fell $5.125 to $73 after announcing an acquisition initially valued at $7.8 billion.

Financial stocks helped lead the Dow lower amid the renewed concerns about interest rates, which could hurt demand for loans. American Express fell $2.50 to $55.813 and J.P. Morgan fell $1.75.

Declining issues outnumbered advancers by a 2-to-1 ratio on the New York Stock Exchange and by an even wider margin on NASDAQ Stock Market.

NYSE composite volume totaled 1.185 billion shares, on par with Thursday's pace.

Overseas, Japan's Nikkei stock average fell 2.12 percent, Germany's DAX index fell 0.77 percent, Britain's FT-SE 100 fell 0.26 percent, and France's CAC-40 fell 1.47 percent.