INSTANT VIEW: Consumer prices fall 0.1 pct in March

U.S. consumer prices fell unexpectedly in March and recorded their first annual drop since 1955, government data showed on Wednesday, as slumping demand pushed down energy and food costs.

NEW YORK (Reuters) - U.S. consumer prices fell unexpectedly in March and recorded their first annual drop since 1955, government data showed on Wednesday, as slumping demand pushed down energy and food costs.

Manufacturing activity in New York State contracted less severely in April after tumbling to a record low in March, the New York Federal Reserve said in a report on Wednesday.

KEY POINTS:

CPI: * The Labor Department said its closely watched Consumer Price Index fell 0.1 percent in March, after increasing 0.4 percent in February. * Analysts polled by Reuters had forecast headline CPI rising 0.1 percent. * Core prices, which exclude food and energy items, rose 0.2 percent after rising by the same margin in February. * Analysts were expecting a 0.1 percent increase. * On a year-over-year basis, consumer prices fell 0.4 percent in March, the first 12-month decline since August 1955, following a 0.2 percent increase the previous month.

EMPIRE STATE: * The New York Fed's "Empire State" general business conditions index was minus 14.65 in April, compared with minus 38.23 in March. * Economists polled by Reuters had expected an April reading of minus 35.00. * The April reading was the highest since September, during the peak of the global credit crunch.

COMMENTS:

PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY CITY, NEW JERSEY:

"The numbers speak to two forces at work in the market. The notion that inflation will pick up in the near-term is completely out of the picture.

"The numbers speak to an economy that is in deep recession, but we're no longer in the shock mode of staggering numbers that speak to a serious slide lower in terms of macroeconomic activity, coupled with the threat of inflation. That scenario, which we were dealing with in the fourth quarter, is behind us. Now we're looking at numbers that speak to recession without the prospect of inflation.

"This afternoon's Beige Book should give us much more ability to drill down on the actual health of the economy."

SCOTT BROWN, CHIEF ECONOMIST, RAYMOND JAMES & ASSOCIATES, ST PETERSBURG, FLORIDA:

"The core inflation reading is a bit higher than anticipated but not a big shock.

"The surprise we had was the New York Fed Empire State index: still weak but not anywhere near as horrible as we were seeing in recent months. That may be a little bit positive for stocks and a bit negative for Treasuries."

MARKET REACTION: STOCKS: Equity index futures pare losses after CPI. BONDS: U.S. Treasury debt prices little changed. DOLLAR: U.S. dollar extends gains versus yen.