U.S. Stocks Fall as Inflation Gains; Banks, Energy Shares Drop (Nick Baker)

  An unexpected surge in inflation drove U.S. stocks to their first decline in three days and erased all of last week's rebound on concern the Federal Reserve is unlikely to lower interest rates this year.

  By Nick Baker

  March 16 (Bloomberg) -- An unexpected surge in inflation drove U.S. stocks to their first decline in three days and erased all of last week's rebound on concern the Federal Reserve is unlikely to lower interest rates this year.

  American Express Co. and Citigroup Inc., whose profits rise when borrowing costs fall, sent the Dow Jones Industrial Average to its sixth weekly loss this year and worst start since 2003. Energy shares slid the most in the Standard & Poor's 500 Index, led by Exxon Mobil Corp., as oil reached a six-week low.

  The 0.4 percent rise in prices paid by consumers in February offset the biggest increase in industrial production since 2005 and stirred speculation the Fed will be hampered in efforts to restore economic growth. Consumer confidence dropped to the lowest in six months, deepening concern the economy is losing momentum.

  ``There has been the feeling that the Fed may be forced to lower rates,'' said Stanley Nabi, who helps oversee about $8 billion at Silvercrest Asset Management in New York. Higher inflation ``will prevent the Fed from reducing rates.''

  The Dow Jones Industrial Average fell 49.27, or 0.4 percent, to 12,110.41. The Standard & Poor's 500 Index retreated 5.34, or 0.4 percent, to 1386.94, while the Nasdaq Composite Index declined 6.04, or 0.3 percent, to 2372.66.

  Stocks retreated this week on speculation that home-loan defaults will curb economic growth. Today's inflation report comes a day after the government said wholesale prices also increased more than expected last month.

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