(Adds close of U.S. markets)
* Stocks fall as oil hits record $126.98 barrel
* Dollar gains, bond prices fall on U.S. retail sales
* Federal Reserve comments on inflation damp sentiment
By Herbert Lash
NEW YORK, May 13 (Reuters) - U.S. stocks mostly slipped on
Tuesday as Wal-Mart's cautious outlook and a renewed focus on
inflation sparked by a record oil price near $127 a barrel and
comments by Federal Reserve officials dampened sentiment.
Fed Chairman Ben Bernanke said the credit crisis was not
over, and several of his colleagues expressed a growing concern
about inflation that may signal a pause in interest rate cuts.
The comments by several regional Fed presidents accelerated
a sell-off of U.S. government debt that was driven earlier in
the day by a stronger-than-expected U.S. retail sales report.
The retail sales report helped lift the dollar broadly as
it bolstered the view that the Fed is unlikely to cut interest
rates when policy-makers meet next month, a move that would
help strengthen the dollar.
The slide in stocks overshadowed earlier optimism after the
Commerce Department report showed surprising strength in April
retail sales, excluding the hard-pressed autos sector.
U.S. Treasury debt prices fell because the report hinted
that economic weakness in the United States might not be as
pronounced as anticipated, while a rise in import prices
underscored the persistent inflation threat to bonds.
"Oil prices and food prices are certainly the root of
inflation at this point. To me oil going up is probably what
capped the (stock) market today," said Joe Saluzzi, co-manager
of trading at Themis Trading in Chatham, New Jersey.
On Wall Street, shares of Hewlett-Packard <HPQ.N> dragged
down the Dow Jones industrial average after it struck a deal to
buy Electronic Data Systems <EDS.N> for $12.6 billion. Some
analysts said HP was paying a rich premium for a slow-growing
business.
HP shares fell 6.6 percent to $43.68, making it the biggest
drag on the Dow and the benchmark Standard & Poor's 500 Index.
Wal-Mart Stores Inc <WMT.N> said quarterly profit rose 7
percent as price-wary shoppers snapped up discounts. But its
shares fell after the world's largest retailer indicated
second-quarter results could miss Wall Street estimates.
Wal-Mart shares fell 2.2 percent to $56.75.
The Dow Jones industrial average <> ended down 44.13
points, or 0.34 percent, at 12,832.18. The Standard & Poor's
500 Index <.SPX> fell 0.54 points, or 0.04 percent, to
1,403.04. The Nasdaq Composite Index <> finished up 6.63
points, or 0.27 percent, at 2,495.12.
In Europe, stocks ended slightly lower as inflation fears
that hit UK stocks and the banking sector fell on renewed
concerns over asset write-downs from a credit crisis that is
still spreading across Europe.
Credit Agricole <CAGR.PA>, France's biggest retail bank,
tumbled 5.7 percent after unveiling a capital increase of 5.9
billion euros ($9.1 billion) following more subprime
mortgage-related write-downs.
The FTSEurofirst 300 <> index of top European shares
ended 0.03 percent lower at 1,346.08 points.
The U.S. retail sales report helped stem the slide in
European shares.
"The market seems to see in the data some sort of positive
signal, but I don't think it's a green light to buy stocks,"
said Yann Lepape, chief of global macro strategy at Oddo
Securities in Paris.
Asian shares gained as banks were bolstered by further
signals that the worst of the credit crisis may now be over, a
sentiment that investors expressed on Monday.
Japan's Nikkei share average <> rose 210.37, or 1.5
percent, to 13,953.73.
The MSCI's index of Asian markets outside Japan
<.MIAPJ0000PUS> rose 0.6 percent. The latest rise took the
index's gains since hitting a mid-March low to around 17
percent.
Oil surged after OPEC producer Iran said it was studying a
plan to cut output despite signs that record-high prices are
hurting consumer nations.
U.S. crude <CLc1> settled up $1.57 at $125.80 a barrel,
after striking a record $126.98 earlier. London Brent crude
<LCOc1> rose $1.19 to $124.10 a barrel.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
29/32 to yield 3.91 percent. The two-year U.S. Treasury note
<US2YT=RR> fell 9/32 to yield 2.47 percent. The 30-year U.S.
Treasury bond <US30YT=RR> fell 42/32 to yield 4.62 percent.
The retail sales data bolstered the dollar because consumer
spending accounts for about two-thirds of the U.S. economy.
"The U.S. consumer is out there and still spending," said
Kurt Karl, U.S. chief economist at Swiss Re in New York. "As
for the Fed, given the recent data, it wouldn't be a bad thing
to stop for a while at 2 percent" -- a reference to the
benchmark federal funds rate, the Fed's lending rate for
banks.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.44 percent at 73.271. The euro <EUR=>
fell 0.44 percent to $1.5477. Against the yen, the dollar
<JPY=> rose 0.98 percent to 104.78.
Spot gold prices <XAU=> fell $16.85, or 1.91 percent, to
$865.05.
(Reporting by Herbert Lash; Editing by Jonathan Oatis)
