Wall Street dips as holiday outlook dims

NEW YORK - Stocks fell on Monday, extending last week's losses, as investors worried that signs of rising inflation and weakness in holiday shopping dimmed prospects for economic growth and corporate profits.

The Nasdaq composite index fell as much as 1 percent.

Disappointing sales at malls and shopping centers over the weekend led the head of America's Research Group, a consumer marketing firm, to lower his holiday sales growth forecast to 1.8 percent from 2 percent.

Adding to signs of a slowdown, a New York state manufacturing index fell to a seven-month low and diversified manufacturer Illinois Tool Works (ITW.N: Quote, Profile, Research) cut its fourth-quarter earnings estimate.

"There seems to be a fair amount of discussion about holiday sales being weaker; that seems to me what is causing a bit of a drag on the market," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois. "It shouldn't be much of a surprise because many of the retailers were warning about the potential for weaker sales."

The Dow Jones industrial average .DJI was down 85.59 points, or 0.64 percent, at 13,254.26. The Standard & Poor's 500 Index .SPX was down 10.23 points, or 0.70 percent, at 1,457.72. The Nasdaq Composite Index .IXIC was down 24.37 points, or 0.92 percent, at 2,611.37.

Stocks fell last week on worries about inflation after unexpectedly large increases in November prices. Investors worried the inflationary threat would tie the hands of the Federal Reserve, keeping policy-makers from cutting rates to avoid a recession.

Illinois Tool Works' shares were down 4.7 percent at $53.26 after the company lowered its profit outlook, citing weakness in North American markets.

In economic news, the Empire State Manufacturing survey by the New York Federal Reserve Bank fell much more than analysts were expecting in November.

But the U.S. current account deficit -- the broadest measure of U.S. trade with the rest of the world -- narrowed more than forecast in the third quarter to $178.5 billion.

In the first money market operation of a coordinated central bank plan, the Federal Reserve will auction $20 billion worth of loans with bidding set to end at 1 p.m. EST. The aim of the Temporary Auction Facility is to get world credit markets working normally again.

Shares of Trane Inc TT.N, a maker of indoor heating and air conditioning systems, surged 23.7 percent to $46.00 on the NYSE after diversified manufacturer Ingersoll-Rand (IR.N: Quote, Profile, Research) said it agreed to acquire Trane for about $10.1 billion in cash and stock.

Ingersoll-Rand'S stock was down 6.4 percent to $46.05.

Shares of Ambac Financial Group (ABK.N: Quote, Profile, Research) surged after it said on Monday it is looking at ways to boost its capital position. Friedman Billings Ramsey lifted its rating on the bond insurer's stock to "outperform" from "market perform."

Ambac stock was up 20.7 percent to $27.53.

The National Association of Home Builders reports on its housing market index for December at 1 p.m. (1800 GMT). The index is expected to be at 19, the same as November's.