Economic Fears Slam Stocks; Dow Dives Below 12000

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Concerns over the strength of the economic recovery ignited a broad selloff, launching the Dow into the red for the sixth-straight week for the first time since 2002 and the Nasdaq into negative territory for the year.

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The Dow Jones Industrial Average fell 172.5 points, or 1.4%, to 11,952, the S&P 500 dipped 18 points, or 1.4%, to 1,271 and the Nasdaq Composite slipped 41.1 points, or 1.5%, to 2,644. The FOX 50 slid 10.9 points to 892.

A flurry of weak economic data has cast a cloud over Wall Street. Indeed, the blue chips fell below the 12,000-mark for the first time since March. For the week, the Dow shed 1.6%, the S&P slumped 2.2% and the Nasdaq tumbled 3.3%.  Both the S&P and the Nasdaq had their worst weekly performance in close to a year.

"The backdrop and cause for our weakness remains just as real as ever," wrote Peter Kenny, managing director at Knight Capital Group, in an e-mail to clients, noting still weak labor market conditions and the looming end of the Fed's quantitative easing program, QE2.

U.S. import prices were up 0.2% in May, according to the Labor Department, compared with expectations of a slight 0.7% dip. On a year-over-year basis, import prices have jumped 12.5% -- the biggest increase since 2008. The monthly gain was led by motor vehicle parts and non-petroleum products, both non-energy products, lending credence to fears that high energy prices are slipping into the so-called core price level.

Core prices are closely-watched by economists because they tend to be less volatile, and generally more reflective, of the actual inflation situation.  There have been concerns that the Federal Reserve's highly-expansionary monetary policy regime might stoke increases in the price level -- something that has largely not come to fruition yet.

Markets will get more information on inflation next week, with the release of the Producer Price Index and the highly-watched Consumer Price Index.

An unexpected drop in the Chinese trade surplus, resulting from higher exports and softer global demand, was seen by some analysts as yet another indication the global economic recovery is slowing down.

On the corporate front, Toyota said it expects its annual profit to slide a wider-than-expected 35% as it struggles with the affects of the earthquake that slammed Japan in March and a strong yen.

Energy markets came under strong selling pressure after Saudi Arabia reported it might boost oil output to Asian markets, and the dollar strengthened.

Light, sweet crude fell $2.64, or 2.6%, to $99.29 a barrel, although oil was only off 93 cents for the week.  Wholesale RBOB gasoline was off 2 cents, or 0.73%, to $3.02 a gallon.

Gasoline prices on the consumer level have moderated slightly this week.  A gallon of regular gas cost $3.72 on average nationwide, down from $3.96 last month, but still well about the $2.71 drivers paid last year, according to the AAA Fuel Gauge Report.

In metals, gold fell $13.50, or 0.88%, to $1,529 a troy ounce.  Silver dipped $1.10, or 2.9%, to $36.34 a troy ounce.

The greenback  gained 0.85% against a basket of world currencies, and the euro fell 1.1% against the dollar.

Corporate News

General Motors (NYSE:GM) recalled 50,500 Cadillac SRX vehicles because the front passenger airbag works differently than the owners manual states.  The fix will involve a software reprogramming, the automaker said.

Novartis (NYSE:NOV) was cut to "underweight" from "equal weight" by analysts at Barclays Capital.

Samsonite raised $1.25 billion in its initial pubic offering, shy of prior estimates of $1.5 billion.

Foreign Markets

The English FTSE 100 fell 1.6% to 5,766, the French CAC 40 dropped 1.9% to 3,805 and the German DAX fell 1.3% to 7,070.

In Asia, the Japanese Nikkei 225 gained 0.5% to 9,514 and the Chinese Hang Seng was down 0.84% to 22,420.

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