NEW YORK — An indication on Monday that the Federal Reserve would raise interest rates to tame inflation shook investors, who pulled back on most sectors.

Fed chairman Ben S. Bernanke, in a panel discussion at the International Monetary Conference in Washington, indicated the U.S. economy is “entering a period of transition” and that the Federal Reserve believes maintaining “low and stable inflation is essential.” Wall Street took the remarks as indication the Fed will maintain its aggressive stance on interest rate increases.

As a result, the Dow Jones Industrial Average and the S&P 500 both shed 1.8 percent to 11,048.72 and 1,265.29, respectively, while the Nasdaq lost 2.2 percent to 2,169.62. In the retail sector, stocks wrapped up trading mostly in the red.

The S&P Retail Index closed down 1.7 percent to 453.66. Bellwether Wal-Mart Stores Inc. fell 1.3 percent to $47.19. But most retailers finished Monday down between 2 and 5 percent. Urban Outfitters, for example, closed down 4.8 percent to $18.06, while Nordstrom Inc. lost 2.6 percent to $36.08.

There were some gainers, however. Gander Mountain and Wet Seal finished the day up 4.8 and 4.2 percent to $6.56 and $4.67, respectively, while Ann Taylor Stores rose 0.3 percent to $39.38. Wet Seal gained on an upgrade to its stock to a “Strong Buy” by equity firm Brean Murray.

This story first appeared in the June 6, 2006 issue of WWD. Subscribe Today.

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