U.S. bonds and blue-chip stocks fell on Wednesday after a report showing higher-than-expected inflation in January suggested U.S interest rates aren't headed lower any time soon, according to Reuters. The U.S. dollar extended gains versus the Japanese yen after the release of the inflation data and after the Bank of Japan increased a key interest rate. The Labor Department's headline Consumer Price Index rose 0.2 percent in January, twice what economists had forecast. The core CPI, which excludes volatile energy and food prices, climbed 0.3 percent, above the forecast for a 0.2 percent gain, according to economists polled by Reuters. Investors had expected that the CPI report would underscore Federal Reserve Chairman Ben Bernanke's statement last week that inflationary pressures are easing and the U.S. economy is expanding at a moderate pace. "The CPI report was an obvious disappointment, not only for the marketplace, but to the Fed," said William Sullivan, chief economist of JVB Financial Group in Boca Raton, Florida. The benchmark 10-year U.S. Treasury note was down 6/32 in price at 99-12/32, with the yield at 4.70 percent. The 2-year U.S. Treasury note was down 2/32 at 100-1/32, with the yield at 4.86 percent. The 30-year U.S. Treasury bond was down 8/32 at 99-8/32, with the yield at 4.80 percent. The Dow Jones industrial average was down 28.68 points, or 0.22 percent, at 12,757.96. The Standard & Poor's 500 Index was down 1.70 points, or 0.12 percent, at 1,457.93. But the Nasdaq Composite Index was up 0.54 of a point, or 0.02 percent, at 2,513.58. In New York, oil futures for March delivery rose 50 cents to $59.35 a barrel, supported in part by rising tensions with Iran over its nuclear program. COMEX gold for April delivery rose $10.70 to $671.70 an ounce, driven higher by fund buying. DOW SLIPS ON RATE WORRIES U.S. blue-chip stocks fell, a day after the Dow average ended at another record high after the surprisingly higher January inflation data raised concerns the Fed won't be cutting interest rates soon. In fact, the data caused some investors to worry the Fed might at some point resume raising rates. "Inflation has turned the corner and is on the uptick," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida. "The Fed will be vigilant in the face of rising inflation." Shares of Dow component Hewlett-Packard Co. fell 4.1 percent to $41.37, a day after the technology bellwether reported a profit that beat estimates. But some investors had hoped the computer and printer maker's earnings exceed expectations by a wider margin. HP had been trading near six-year highs recently. DOLLAR UP AFTER CPI AND BOJ'S RATE HIKE The dollar extended gains versus the Japanese yen after the release of the U.S. inflation data and traded at session highs. Against the Japanese yen, the dollar was up 0.85 percent at 120.97 at midday in New York from a previous session close of 119.95. The yen weakened on Wednesday after an interest-rate rise from the Bank of Japan was accompanied by cautious words on future tightening, easing investor fears about an unraveling of the global carry trade. The yen was already down against the dollar after the BOJ raised interest rates to a decade high of 0.5 percent but left investors doubting the BOJ will move again any time soon, particularly with core inflation barely rising. "The market was expecting a flat number, so that's why the dollar's rallying a bit here," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington, D.C. "But even though this shows there are slight inflation pressures lingering, I don't think it's good for more than a 10- or 15-pip push." Japanese stocks also got a boost from the BOJ. The country's broadest stock index, the TOPIX, rose 0.25 percent or 4.50 points, to 1,787.23, the highest close since November 1991. But the Nikkei slipped 0.14 percent, or 25.91 points, to close at 17,913.21. The euro fell 0.1 percent to $1.3125 from $1.3138 late Monday in New York. In overseas trading, European shares reversed earlier gains. The pan-European FTSEurofirst 300 index declined 0.6 percent to 1,535.51 and the DJ Euro STOXX 50 lost 0.4 percent to 411.95.
