(Updates market moves, prices, adds comment)
By John Parry
NEW YORK, March 16 (Reuters) - Stocks slipped and the dollar fell to a three-month low on Friday, hurt by concerns that crisis in the U.S. subprime mortgage market could curb growth in the world’s biggest economy.
Although inflation data hinted that the Federal Reserve might refrain from cutting rates for longer than previously thought, U.S. Treasury bonds traded little changed. Treasuries tend to tap a safe-haven bid out of riskier assets when stocks sell off.
Late afternoon in New York, the benchmark 10-year Treasury note US10YT=RR was down 2/32 in price for a yield of 4.55 percent, compared with 4.54 percent late on Thursday. Bond yields and prices move inversely.
“People are more focused on the stock market as a leading indicator than any single piece of economic data,” said Scott Gewirtz, head of Treasury trading at Lehman Brothers in New York.
“People are trying to figure out the knock-on effects from what is going through the economy right now in subprime”, he added. For more on the subprime crisis, see [ID:nN16195443].
U.S. equities fell as inflation data reduced hopes for interest rate cuts and worries lingered over a possible spread of the crisis in the subprime mortgage market.
The Dow Jones industrial average .DJI ended the day down 49.27 points, or 0.41 percent, at 12,110.41. The Standard & Poor's 500 Index .SPX finished down 5.33 points, or 0.38 percent, at 1,386.95. The Nasdaq Composite Index .IXIC closed down 6.04 points, or 0.25 percent, at 2,372.66.
Major investment banks traded lower despite strong results reported this week by Goldman Sachs Group Inc. (GS.N), Lehman Brothers Holdings Inc. LEH.N and Bear Stearns Co Inc. BSC.N. Home builder shares were also broadly lower.
Equities and fixed income investors have fretted about the inflation outlook since a report on Thursday that showed higher-than-expected U.S. producer prices. Stubbornly high core consumer price data released on Friday reinforced the view that the Federal Reserve will not rush to start easing rates, keeping a lid on Treasury bond prices.
“The CPI puts pressure on the Fed to remain on the sidelines, thus don’t look to the Fed to provide any relief any time soon,” said Joseph Battipaglia, chief investment officer for Ryan, Beck & Co., brokerage and research firm in Philadelphia.
The Consumer Price Index for February showed inflation excluding volatile food and energy prices at 2.7 percent year-over-year, well above the Fed’s comfort zone of between 1 percent and 2 percent.
The dollar dropped to three-month lows against the euro on concerns about U.S. economic growth, but the U.S. currency pared some losses after factory output exceeded expectations.
Sentiment on the greenback, which fell broadly, had soured overnight, with investors suspecting the crisis in the U.S. market for subprime mortgages, extended to borrowers with risky credit, could seep into other markets and parts of the economy, particularly after former Federal Reserve chief Alan Greenspan warned of such a risk on Thursday.
Crude oil fell in technically driven trade, weighing on energy shares. U.S. crude for April delivery CLJ7 was 35 cents lower at $57.20 per barrel in late trade.
Benchmark April gold 2GCJ7 rose $6.80 to finish at $653.90 an ounce, due to the slumping dollar.
Additional reporting by Chris Reese, Kevin Plumberg, Gertrude Chavez-Dreyfuss, Caroline Valetkevitch and Gene Ramos