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By Jennifer Yousfi
Inflation worries coupled with a troubling report from KKR Financial Holdings LLC (KFN) conspired to drive the markets lower today (Wednesday).
At noon ET, the three major U.S. stock indices were all in the red. The blue-chip Dow Jones Industrial Average Index dropped 73.19 points (-0.59%), to trade at 12,264.03. The tech-laden Nasdaq Composite Index shed 9.07 points (-0.39%), to reach 2,297.13. And the broader Standard & Poor's 500 Index lost 6.87 points (-0.51%), to settle at 1,341.91.
A report from the Labor Department that inflation rose more than expected in January sparked investor concern that the Federal Reserve will not be able to aggressively cut interest rates in order to avoid a U.S. recession. Oil prices have crossed the $100 a barrel threshold and high fuel costs are weighing on businesses and consumers alike.
"What this means is that they don't have as much comfort to play with rates," Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in a Bloomberg Television interview, referring to Fed officials. "Once the U.S. economy looks like it's started to stabilize, they're going to have to jump right back in to that, raising rates back up to neutral."
In other news, KKR Financial Holdings, the listed affiliate of private-equity firm Kohlberg Kravis Roberts & Co., filed a report with the Securities and Exchange Commission stating that it would delay repayment on billions of dollars in commercial paper debt for the second time. The report fueled worries that the credit crisis has yet to reach its bottom.
U.S. market worries spilled over into overseas trading, as Asian markets saw losses across the board. Japan's Nikkei Index slid 3.3% with a 447.54-point decline to close at 13,310.37. Hong Kong's blue-chip Hang Seng Index slumped 2.2%, with a loss of 532.59 points to close at 23,590.58.
"People are worried about inflation," Tat Auyeung, fund manager at APEX Capital Management, told Reuters. "If oil prices continue zooming around these levels, it will be tough for the Fed to cut rates aggressively."
At midday, the dollar had gained against the euro [up 0.457%], the yen [0.232%], and the pound sterling [0.490%].
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