U.S. MARKET AVERAGES

Tech stocks sold-off for the second day this week this time it was earnings. December fall in CPI index of 0.1% was better than market expectation of rise of 0.2% in inflation. However, on a day of earnings from several large companies, market ignored fall in inflation. Beige Book report also indicted that despite rising wage pressures in the select markets core inflation is under control. Several Fed governors have been indicating that Fed may be near the end of the rate hike cycle. At close all three averages closed lower led by 1% decline in Nasdaq.

Computer hardware and Internet stocks sold-off as Intel and Yahoo missed earnings estimates of traders. Financial services stocks specifically bank stocks were mixed as companies reported mixed earnings picture. J P Morgan reported better than expected earnings but Wells Fargo and Fifth Third Bancorp disappointed market.

After-the-close Apple Computer reported earnings of 65 cents vs. 35 cents a year ago on revenue of $5.75 billion. The company also reported that it shipped 1,254,000 Macintosh computers and 14,043,000 iPods during the quarter, representing 20 percent growth in Macs and 207 percent growth in iPods over the year-ago quarter. However, company stock sold-off 6% in the after-market trading.

EBay reported earnings of 20 cents vs. 15 cents for the fourth quarter earnings on revenue growth of 42% to $1.33 billion. The company stock dropped 5% in the after-market trading.

Dow component Intel Corp., (INTC: chart) the world''s top chipmaker, reported Q4 results below expectations on weak demand for the processors used in desktop computers. Piper Jaffray downgraded its rating on the company and cut its price target. Yahoo Inc., the world''s largest Internet media company, also posted quarterly earnings that fell short of Wall Street expectations.

International Business Machines Corp., (IBM: chart) the world''s biggest computer company, said quarterly profit rose higher than expected. Consequently, J. P. Morgan maintained its ''neutral'' rating on IBM.

Yet most of the U.S. market''s losses could be blamed almost entirely on tech-sector selling, with other stocks generally holding firm after the Labor Department reported better-than-expected retail inflation data.

Technology stocks were the most conspicuous decliners in the morning session. Energy stocks also posted weakness on profit-taking from the recent run up. The oil sector dropped 1.3%.

The airline sector bounced back, recovering from a week-long slide that took it to a 2-month low. The HMO sector climbed during the morning to erase some recent losses. The sector rose about 1.7%, led by greater-than-3% gains in Aetna and Humana.

Ethan Allen (ETH: chart) jumped to a new 52-week high on strong earnings and upbeat guidance. Exelon added to a recent advance to set a fresh peak. Archer-Daniels-Midland (ADM: chart) also pushed to a fresh peak.

Dana Corp. added to its earnings-related decline, extending its 52-week low. Impac Mortgage and Apollo Group also extended their lows.

In midday trading, the tech-focused Nasdaq composite index fell 26.99, or 1.17%. The Dow Jones industrial average dropped 53.15, or 0.49%, and the Standard & Poor''s 500 index lost 7.27, or 0.57%.

Bonds were little changed, with the yield on the 10-year Treasury note steady at 4.33% from late Tuesday.

ECONOMIC NEWS

Consumer prices unexpectedly showed a modest decline in December, according to a report from the Department of Labor. The drop in prices was largely due to a continued decrease in energy prices.

The Labor Dept. said that its consumer price index fell 0.1 percent in December following a 0.6 percent decrease in November. Economists had been expecting prices to increase by about 0.1 percent.

The decrease in prices was due in large part to a 2.2 percent drop in energy prices, which continued lower after falling 8.0 percent in November. Prices for transportation and apparel also fell in December.

The core CPI, which excludes food and energy prices, rose 0.2 percent in December, matching the increase seen in the two previous months. The modest increase came in line with economist estimates.

The report also showed that the CPI rose 3.4 percent for the 12 months ended in December compared to a 3.3 percent increase in 2004. At the same time, the core CPI rose 2.2 for 2005, unchanged from the previous year.