US stocks slump despite better-than-expected economic data

US stocks fell again yesterday. Bloomberg reports:

U.S. stocks fell, extending the longest stretch of weekly losses for the Standard & Poor's 500 Index since 2004, as growing concern about the health of Fannie Mae and Freddie Mac sent bank shares to an 11-year low...

The S&P 500 lost 13.9, or 1.1 percent, to 1,239.49, its lowest level in two years. The Dow Jones Industrial Average fell 128.48, or 1.1 percent, to 11,100.54 after earlier tumbling as much as 251 points. The Nasdaq Composite Index slipped 18.77, or 0.8 percent, to 2,239.08. About five stocks dropped for every three that rose on the New York Stock Exchange.

Inflation fears moved to the background, although they remained evident in the data reported yesterday.

Prices of goods imported into the U.S. rose more than forecast in June as record energy costs and a decline in the dollar made purchases of foreign products more expensive. The 2.6 percent increase in the import price index last month matched the gain in May, the Labor Department said today. The index jumped 20.5 percent from a year ago, the biggest year- over-year increase on record.

And from Bloomberg's report on the Reuters/University of Michigan consumer sentiment survey:

The survey also showed consumers expect the inflation rate over the next five years to be 3.4 percent, the same as they expected in June and to rise to 5.3 percent over the next 12 months, compared with a 5.1 percent forecast in the June survey.

But the economic data were generally better than expected.

The Reuters/University of Michigan preliminary index of consumer sentiment registered 56.6, higher than forecast and little changed from a June reading of 56.4 that was the lowest since May 1980...

The trade report from the Commerce Department showed the gap between imports and exports shrank 1.2 percent to $59.8 billion...

And the ECRI's weekly leading index rose to 132.5 in the week to 4 July from 131.2 in the previous period.

Across the Pacific, though, consumer sentiment continued to decline. Bloomberg reports:

Japanese consumers became the most pessimistic they've been in at least 26 years as higher gasoline prices and food costs eroded their spending power.

The sentiment index dropped to 32.6 last month from 33.9 in May, the Cabinet Office said today in Tokyo, the lowest since the government began compiling the figures in 1982.

And Japanese industrial production in May has been revised down to a 2.8-percent increase from a 2.9-percent preliminary reading.