(RTTNews) - Investors are selling stocks in morning trading on Tuesday, continuing the downward move seen in the previous session, when the Dow fell more than 180 points. A sharply higher rate of inflation reminded investors of the difficult state of the economy.

Earlier in the day, the Labor Department released its report on wholesale price inflation in the month of July, showing that prices increased by much more than expected due in part to a continued increase in energy prices.

The Labor Department said that its producer price index jumped 1.2 percent in July following an unrevised 1.8 percent increase in June. Economists had been expecting a much more modest increase of about 0.6 percent.

The report also showed that the core producer price index, which excludes food and energy prices, rose 0.7 percent in July after edging up 0.2 percent in each of the two previous months. The increase came in well above economists’ expectations of another 0.2 percent increase.

At the same time, the Commerce Department released its data on housing starts, which showed a notable decrease in the month of July. While the decrease was not quite as steep as economist had been expecting, it did little to quell the sour mood of the markets.

Within the financial sector, investment bank Lehman Brothers Holdings Inc. (LEH) is reportedly considering the sale of all or part of its investment management business, including the Neuberger Berman unit. The company’s investment management business is estimated to be worth about $8 billion to $10 billion.

According to reports, the fourth-biggest U.S. securities firm intends to reach a deal by the time it announces its financial results for the third quarter in September. The company’s investment-management business includes private-client, hedge-fund and private-equity components in addition to Neuberger Berman.

Meanwhile, Freddie Mac (FRE) and Fannie Mae (FNM) are adding to the losses posted in the previous session. On Monday, both stocks plunged more than 20 percent following a report from Barron’s that suggested the U.S. Treasury Department might need to bail out the mortgage giants in the upcoming months using taxpayer dollars. Fannie Mae is currently down 3.7 percent, while Freddie Mac is falling 6.4 percent.

In recent trading, the major averages have been lingering near their worst levels of the day. The Dow is currently down 116.10 at 11,363.29, the Nasdaq is down 21.01 at 2,395.97 and the S&P 500 is down 10.94 at 1,267.66.

Sector News

Bank stocks are turning in some of the worst performances, with the S&P Bank Index falling 3.5 percent. Adding to sharp loss posted in the previous session, the index set a three-week intraday low earlier in the day.

Within the bank sector, KeyCorp (KEY) and BB&T (BBT) are among the worst decliners. Shares of KeyCorp are down 7.1 percent, compared to a 4.7 percent decline by BB&T. On Monday, a Sandler O’Niell & Partners analyst reiterated his Hold rating on BB&T, stating that the bank should hold up better than its peers.

Following the weak housing start data, housing stocks are also seeing significant selling pressure. The Philadelphia Housing Index is down 2.5 percent, adding to a sharp loss posted in the previous session.

Retail stocks are posting considerable losses as well. The S&P Retail Index is falling 2.1 percent, adding to the loss posted on Monday. Staples (SPLS) is one of the biggest drags on the retail sector after the company posted disappointing preliminary results for its second quarter.

Other stocks that are showing weakness include brokerage, real estate and semiconductor stocks. The Amex Broker/Dealer Index is down 2.3 percent, the Morgan Stanley REIT Index is down 2.6 percent and the Philadelphia Semiconductor Index is down 1.6 percent.

On the other hand, oil service and health insurance stocks are seeing some strength. The Philadelphia Oil Service Index is up 1.3 percent, compared to a 0.9 percent gain by the Morgan Stanley Healthcare Payor Index.

Stocks Driven By Analysts Comments

Among individual stocks, Hasbro (HAS) is seeing significant selling pressure after being downgraded by an analyst at BMO Capital Markets. The analyst downgraded the stock to an Underperform rating from a Market Perform rating.

Shares of the toy maker are currently trading lower by 3.4 percent, adding to a sharp loss posted in the previous session. Earlier in the day, the stock set a monthly closing low.

Affiliated Computer Services (ACS) is also showing notable weakness after a Goldman Sachs analyst downgraded the stock to a Neutral rating due to limited near term catalysts. The stock is falling 2.8 percent, ending its three-day uptrend.

On the other hand, Mastercard (MA) was upgraded to a Buy rating by an analyst at Goldman Sachs, sending the stock higher. The analyst upgraded the stock following a 25 percent correction from the highs seen in June. Shares of Mastercard are up 1.8 percent.

Other Markets

Stock markets across the Asia-Pacific region came under pressure on Tuesday, as fears that the U.S. government will have to bail out the top mortgage finance companies weighed on financial stocks. The Japanese market closed sharply lower, reversing Monday’s gains. The benchmark Nikkei 225 index closed down 2.3 percent at a one-month low of 12,865.

The Bank of Japan announced that it is keeping its uncollateralized overnight call rates unchanged at 0.5 percent. The decision to pause was adopted unanimously. The bank also said that it would carefully assess the future outlook for economic activity and prices closely, considering the likelihood of its projections as well as factors posing upside or downside risks, and accordingly, will implement its policies in a flexible manner.

Likewise, the major European markets are also trading lower on Tuesday. While the French CAC 40 Index is losing 2.3 percent, the German DAX Index is declining 1.9 percent. The U.K.’s FTSE is down 2.1 percent.

A report released by the German Federal Statistical Office showed that German producer prices rose 8.9 percent in July compared to the year-ago period. The July inflation rate was the highest since October 1981, when it rose by 9.1 percent. On a month-over-month basis, the index was up 2 percent in July. The statistical body blamed the price increase on higher prices of natural gas, electricity and mineral oil.

Meanwhile, treasuries are trading with a lack of direction following the release of mixed economic data. The benchmark ten-year note has been lingering near its unchanged line, and its yield is currently down less than a basis point at 3.814 percent.

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Posted in Categories: Economy, Eurozone, Japan, Releases, USA.

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