US stocks declined over the past week as investors engaged in profit-taking while fretting about the health of the US economy and whether the Federal Reserve may seek to raise interest rates anew.
The blue chip Dow Jones Industrial Average fell 0.6 percent in the week to Friday to 11,392.11, while the tech-rich Nasdaq composite declined 1.3 percent to 2,165.79.
The broad-market Standard and Poor's 500 shed 0.9 percent on the week to 1,298.92.
Tradition also seemed to be playing a hand in Wall Street's past week as September is historically the worst month of the year for the stock market.
The debate about whether the US central bank will be forced to hike interest rates again in the near future was spurred in the past week by a stronger-than-expected reading on wage inflation in a government report on productivity.
"The major problem remains a market that is coming off a seven-week rally and into the tough month of September," observed Al Goldman, an analyst at AG Edwards.
"The economic news is mixed, but the fact that unit labour costs are rising much faster than earlier data had indicated raised fears of possible additional rate hikes by the Fed," Goldman said, referring to the productivity report.
Investors will get a fresh snapshot on inflation next Friday when the government releases its Consumer Price Index reading for August.
Most analysts expect August CPI to tick up 0.2 percent, and for the core rate, which excludes energy and food prices, to rise 0.2 percent compared with respective July gains of 0.4 and 0.2 percent.
Investors are jittery over inflation as the recent rise in oil prices has stoked inflationary pressures, a development which might encourage the Fed to raise rates.
However, oil prices have fallen sharply in recent days and some analysts said the threats of energy-driven inflation are now easing.
New York's main futures contract, light sweet crude for delivery in October, closed down a hefty 1.07 dollars at 66.25 dollars per barrel on Friday, marking its lowest level since April 5.
New York prices have now fallen over 12 dollars from a record high of 78.40 dollars struck in mid-July.
The coming week will also see fresh updates on the US trade deficit with its major trading partners, as well as reports on retail sales, industrial production and consumer sentiment among other data due for release.
Retail sales in August are expected to have fallen 0.1 percent following a gain of 1.4 percent in July as American consumers cut back their spending amid higher energy costs and rising mortgage payments.
With the housing market cooling rapidly, economists will be closely tracking the retail sales report for fresh clues on the consumer. Further pullbacks by consumers would apply less pressure on the Fed to raise rates, a move which could dampen consumer sentiment.
"It seems clear that the slowing economy means that the Federal Reserve has finished its rate-tightening campaign," Bob Doll, the chief investment officer of Merrill Lynch, said in a note to investors.
"Although the central bank will likely continue its hawkish rhetoric regarding inflation," Doll added.
Doll believes that a slowing economy will eventually become more of a concern to the Fed than inflation and that the Fed will begin easing rates during the first half of 2007. September is usually a weak month for the market, averaging a loss of some 1.5 percent since 1980.
Bond prices weakened over the past week. The yield on the 10-year Treasury bond rose to 4.771 percent from 4.726 percent a week earlier, while that on the 30-year bond climbed to 4.916 percent from 4.873 percent. Bond yields and prices move in opposite directions.