Stocks lose ground, Treasury yields soar after inflation data

NEW YORK (Aug 12) - The S&P 500 and Nasdaq turned negative while Treasury yields rose as investors digested signs of cooling U.S. inflation and bets the Federal Reserve could slow its rate hikes against warnings that the battle with rising prices was far from over.

Thursday's data showed U.S. producer prices unexpectedly fell in July amid a drop in the cost of energy products. This followed Wednesday's surprise news that consumer prices were unchanged in July due to a drop in gasoline prices. read more

But meanwhile, U.S. Treasury yields rallied after dropping sharply earlier.

Two straight days of slower inflation data had given investors hope that soaring prices were finally "peaking and heading in the right direction," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

But he cautioned that this was a "one month data point."

"You'd still like to see a trend next month and see it's not necessarily just energy. You want to see other prices coming down. It's still early in the game," Saluzzi said.

After adding more than 2% on Wednesday and rising more than 1% to a 3-month high earlier on Thursday, the S&P turned red in afternoon trading and Nasdaq turned negative.

The Dow Jones Industrial Average (.DJI) rose 28.71 points, or 0.09%, to 33,338.22, the S&P 500 (.SPX) lost 2.12 points, or 0.05%, to 4,208.12 and the Nasdaq Composite (.IXIC) dropped 70.92 points, or 0.55%, to 12,783.88.

The pan-European STOXX 600 index (.STOXX) closed up 0.06% and MSCI's gauge of stocks across the globe (.MIWD00000PUS) gained 0.1%.

"In some regards we've already priced in the hope that inflation isn't going to be as bad as previously expected and the expectation the Fed is not going to be as aggressive," said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas.

REUTERS