NEW YORK (AP) -- Wall Street pulled back modestly Tuesday as investors, disappointed by a low reading on consumer sentiment, traded with caution ahead of the Federal Reserve's Wednesday decision on interest rates.
The Conference Board said its April reading on consumer confidence fell for the fourth straight month because of heightened concerns about soaring inflation and the weakening job market.
Consumers are not the only ones anxious about inflation - Wall Street is worried that accelerating inflation could curtail consumer spending, which accounts for more than two-thirds of the U.S. economy. Rising costs are also of paramount concern to the Fed, which began a two-day policy meeting Tuesday.
The Fed is expected to cut interest rates by a quarter point on Wednesday, but then hold firm for a while. Policy makers face a difficult juggling act of trying to shore up the faltering economy without triggering inflation.
"There's no panic out there (in the market) because of the consumer confidence numbers, but there is more concern about inflation then we had just a few weeks ago," said Jim Herrick, director of equity trading at Baird & Co. "Everyone is interested in what the Fed will do about it."
In midafternoon trading, the Dow Jones industrial average fell 18.56, or 0.14 percent, to 12,853.19.
The biggest drag on the Dow was its component Merck & Co., which sank $4.17, or 10 percent, to $37.27 after saying the Food and Drug Administration refused to approve a new cholesterol drug, Cordaptive.
Broader markets also declined. The Standard & Poor's 500 index dipped 3.27, or 0.23 percent, to 1,393.10, and the Nasdaq composite index retreated 0.18, or 0.01 percent, to 2,424.22.
Bond prices edged higher as investors remained hesitant about equities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.81 percent from 3.82 percent late Monday.
Oil prices fell amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened further against the euro. Light, sweet crude for June delivery fell $2.83 to $115.91 a barrel on the New York Mercantile Exchange.
Falling energy prices helped lift airline stocks. Continental Airlines Inc. rose 66 cents, or 3.9 percent, to $17.62, JetBlue Airways Corp. rose 15 cents, or 3 percent, to $5.12, and AMR Corp., the parent of American Airlines, rose 80 cents, or 10.3 percent, to $8.54, after Citigroup analyst Andrew Light said it stands to gain from industry consolidation even though it is unlikely to merge itself.
But overall, Wall Street was pressured by a report from research firm RealtyTrac that showed the number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier.
And earnings reports came in mixed.
On the positive side, Lear Corp. reported a first-quarter profit rise, lifted its 2008 sales outlook, and backed its earnings prediction for the year. Lear shares rose $4.72, or 17.9 percent, to $31.14.
Meanwhile, MasterCard Inc. spiked $24.06, or 9.8 percent, to $266.56 after reporting that profit more than doubled in the first quarter, and rival Visa Inc. rebounded from an early decline to rise $1.28 to $76.35 after reporting late Monday its first-quarter profit increased 28 percent. Both companies said cardholder use rose moderately in the United States, and particularly quickly abroad.
But profit woes are not yet over for financial institutions with big exposure to consumer debt.
Countrywide Financial Corp., the nation's largest mortgage lender and servicer, said it lost $893 million during the first quarter due to a sharp increase in its provisions for unpaid home mortgage loans. The latest results marked the third consecutive quarterly loss for Countrywide, which agreed in January to sell itself to Bank of America Corp. for about $4 billion in stock.
Shares of the lender rose 9 cents to $5.92, while BofA fell 44 cents to $37.74.
And Deutsche Bank AG said it wrote down $4.2 billion in leveraged loans, commercial real estate and mortgage-backed securities, during the first quarter, pushing Germany's biggest bank to its first quarterly loss since 2003 amid trading losses, lower revenue and global market jitters.
The Russell 2000 index of smaller companies fell 10.02, or 1.38 percent, to 715.35.
Declining issues surpassed advancers by about 3 to 2 on the New York Stock Exchange, where volume came to a light 720.6 million.
Overseas, Japan's Nikkei stock average rose 0.22 percent. Britain's FTSE 100 fell 0.02 percent, Germany's DAX index fell 0.58 percent, and France's CAC-40 shed 0.71 percent.
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