June 6 (Bloomberg) -- U.S. stocks posted their biggest two- day drop since March after a report showed labor costs rose more than expected and a second Federal Reserve official said inflation is too high.
Home Depot Inc., the largest home-improvement chain, led a gauge of retailers lower. Panera Bread Co. declined the most in six years after the bakery chain cut its forecast for profit and sales due to higher fuel costs.
Reports today showed labor costs gained and productivity growth slowed, spurring speculation that price increases will restrain consumer spending and raise the cost of borrowing. Fed Bank of Cleveland President Sandra Pianalto said the central bank ``cannot afford to be complacent'' about inflation.
``I am very concerned about inflation, with respect to how it would affect the market,'' said Joseph Ranieri, a trader at Canaccord Adams Inc. in Boston. ``I would be cautious.''
The Standard & Poor's 500 Index lost 12.41, or 0.8 percent, to 1518.54 as of 11:09 a.m. in New York. The Dow Jones Industrial Average fell 107.11, or 0.8 percent, to 13,488.35. The Nasdaq Composite Index declined 23.89, or 0.9 percent, to 2587.34.
Pianalto said inflation has been higher than she's comfortable with and identified rising energy and commodity prices as possible threats. She said there is a risk that inflation expectations could move higher. She spoke to a conference in Frankfurt today.
Stocks posted their first decline in a week yesterday after bond yields surged and Fed Chairman Ben S. Bernanke said core inflation ``remains somewhat elevated.''
Labor Costs
A measure of labor costs rose 1.8 percent in the first quarter, the Labor Department said today. That's triple the rate initially reported and higher than the 1.3 percent economists had expected in a Bloomberg News survey.
Productivity, a measure of how much an employee produces for each hour of work, rose at an annual rate of 1 percent, down from the 1.7 percent pace reported last month, revised Labor Department figures showed.
The Fed's preferred inflation measure has been at or above the top of a 1 percent to 2 percent range preferred by policy makers for three years. The core personal consumption expenditures price index, which excludes food and energy, rose 2 percent in the 12 months to April.
Better-than-expected growth in service industries last month sent the two-year Treasury note yield to 5 percent yesterday for the first time since August. The yield held at 4.98 percent today.
Traders who a month ago were convinced the Federal Reserve would lower its target for the overnight lending rate between banks at least once by year-end now see almost no chance of that happening, interest-rate futures yields show. The central bank has repeatedly emphasized the risks of inflation.
Borders
Home Depot fell 46 cents, or 1.2 percent, to $38.40. Lowe's Cos., the second-biggest home-improvement retailer, slipped 40 cents to $32.02.
Borders Group Inc., the No. 2 bookseller, dropped 88 cents to $20.90. Borders is a less likely takeover candidate after the U.S. Federal Trade Commission filed a lawsuit to block Whole Foods Market Inc.'s purchase of rival natural-foods grocer Wild Oats Markets Inc., Goldman said.
Panera lost $7.18 to $51.14 after the company said second- quarter earnings will be 38 cents to 40 cents a share and sales at stores open at least 18 months will increase by 1.5 percent to 2.5 percent. Panera had forecast profit of as much as 51 cents a share and sales growth of up to 4.5 percent.
Cooper Cos. dropped 56 cents to $53.54. The maker of contact lenses said second-quarter profit, excluding some items, was 48 cents a share. That missed the 60-cent average analyst estimate compiled by Bloomberg.
TD Ameritrade surged 86 cents to $20.81. The hedge funds Jana Partners LLC and SAC Capital Advisors LLC, which own about 8.4 percent of TD Ameritrade, said the company should look into merging with E*Trade Financial Corp. or Charles Schwab Corp, saying that would ``dramatically increase long-term shareholder value.''
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