Dow hits record, then retreats

NEW YORK (CNNMoney.com) -- Technology led a broader stock market selloff Thursday, with investors backing off after pushing the Dow and S&P 500 to record intra-day highs earlier in the session.

The Dow Jones industrial average (Charts) lost around 0.5 percent. Earlier, the Dow had risen more than 100 points and hit an all-time intra-day high of 14,198.02.

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The S&P 500 (Charts) index fell 0.5 percent. The broad index briefly hit a record intra-day high of 1,576.09 before backing off.

The tech-heavy Nasdaq composite (Charts) lost 1.4 percent, erasing early gains that set it at a fresh 6-1/2 year high.

Stocks rallied through the early afternoon after Wal-Mart's improved earnings forecast tempered some worries about consumer spending and a spike in oil prices lifted big oil stocks.

But the advance hit a roadblock in the afternoon, with investors backing off shortly after the major gauges hit the records, said Tom Schrader, managing director of U.S. equity trading at Legg Mason.

"We were having a pretty good day, until they [investors] decided we've gotten too extended on the upside," Schrader said. "So they're hitting the semis and some of the other techs pretty hard in the afternoon."

Afternoon comments about inflation from a European Central Bank Council member reminded U.S. investors about that still-present threat, ahead of Friday's report on wholesale pricing pressure.

Due before the start of trade Friday, the Producer Price Index (PPI) is expected to have risen 0.5 percent in the month after falling 1.4 percent in the previous month. The so-called "core" PPI, which strips out food and energy prices, is expected to have risen 0.2 percent, as it did in the previous month.

Business inventories and consumer sentiment reports are also due later in the session Friday.

On the corporate front, GE is due to report earnings Friday morning.

Declines were broad based, with 22 out of 30 Dow issues sliding, led by Alcoa (Charts, Fortune 500), Caterpillar (Charts, Fortune 500), Intel (Charts, Fortune 500) and United Technologies (Charts, Fortune 500).

Component Boeing (Charts, Fortune 500) slipped for a second day in a row on news that it is delaying the delivery of its first 787 Dreamliner planes by six months, due to assembly problems. Boeing said the delay won't hit 2007 and 2008 earnings, but investors sent the stock lower anyway.

Wal-Mart Stores (Charts, Fortune 500), the world's largest retailer, said it now expects to earn 66 to 69 cents per share, up from a previous range of 62 to 65 cents. The Dow company attributed this strength to cost-cutting rather than sales growth.

Wal-Mart also reported tepid September sales growth, but investors sent the stock 3.5 percent higher anyway on bets that it means consumer spending will hold up OK, despite the housing market collapse.

But Wal-Mart was a standout, with many retailers providing weak September sales numbers and some issuing earnings warnings, including Nordstrom (Charts, Fortune 500). The high-end retailer said it struggled with high inventory levels, a potentially bad sign for consumer spending going into the holiday shopping season.

Apple (Charts, Fortune 500), eBay (Charts, Fortune 500), Google (Charts, Fortune 500), Oracle (Charts, Fortune 500) and Research In Motion (Charts) were among the big technology stocks that got pummeled after rising in the morning.

Some reports blamed a bearish JP Morgan note on Chinese Internet company Baidu.com (Charts) for the tech selloff, although the sector was likely vulnerable anyway after the recent run.

The run up in oil and gold prices lifted the stocks of oil services and metals firms. However, it dragged on the airline sector, as those companies are especially sensitive to fuel price fluctuations.

Meanwhile, auto stocks rallied after the Chrysler strike ended quickly and GM (Charts, Fortune 500) workers ratified their new contract.

Market breadth was negative. On the New York Stock Exchange, losers beat winners 5 to 3 on volume of 1.52 billion shares. On the Nasdaq, decliners topped advancers 7 to 3 on volume of 2.54 billion shares.

PepsiCo (Charts, Fortune 500) reported higher quarterly sales and earnings that topped estimates. However, investors took a "sell the news" approach, sending shares lower.

Alcoa (Charts, Fortune 500) unofficially kicked off the third-quarter earnings reporting period earlier this week and GE (Charts, Fortune 500) will be the next bellwether to open the books, when it reports results on Friday. But the big wave of earnings doesn't really kick in until next week.

Currently, earnings are expected to have grown just 1.4 percent in the third quarter, according to tracking firm Thomson Financial, the worst quarterly growth figure in more than five years.

The poor showing is partly due to tough comparisons with the same quarter a year ago, in which earnings growth was strong. Yet, beyond the comparisons, earnings growth is set to suffer amid the fallout in the mortgage market.

So far, investors have taken in stride more than $20 billion in writedowns from the financial sector, due to the subprime crisis. And that could be an indication of how stock investors may respond to any weak earnings being reported over the next few weeks.

"The market knows that most of the third-quarter earnings retrenchment is due to financials and energy, and both groups are expected to expand earnings in the fourth quarter," said Jack Ablin, chief investment officer at Harris Private Bank.

He said that on a broader level, investors are probably going to be willing to look past the third-quarter earnings because they expect an overall recovery in the fourth quarter. Currently, Thomson is looking for earnings growth of at least 10 percent in the fourth quarter.

In economic news, the trade deficit fell to a 7-month low, thanks to strong sales overseas and the impact of the weak dollar.

The number of Americans filing new claims for unemployment fell last week, versus expectations for the number to hold steady. The four-week moving average, considered to be a more reliable number, also dropped.

Another report showed that the number of mortgage delinquencies fell in September after hitting a 32-month high in August.

In global trade, Asian and European markets ended higher.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 4.63 percent from 4.65 percent late Wednesday. Bond prices and yields move in opposite directions.

COMEX gold for December delivery rose $10.70 to settle at $756.70 an ounce.

U.S. light crude oil for November delivery rose $1.78 to settle at $83.08 a barrel on the New York Mercantile Exchange. Prices gained after the weekly government report showed a drop in crude inventories.