Wall Street failed to muster a convincing rally on Tuesday despite lower crude prices and a raft of positive economic data.

In the end, news of stronger-than-expected consumer confidence, a jump in demand for durable goods and record new home sales served mainly to raise fears of inflation. After making sharp gains in morning trading, the main indices pulled back on concerns that the Fed would continue its interest rate hikes in face an overly robust economy.

The Dow Jones Industrial Average was virtually flat, down 2.40 points at 10,888.32, as was the broader S&P 500, up .05 points at 1,257.51. The Nasdaq Composite index, dragged down by losses in Google, fell 0.3 per cent, or 6.66 points to 2,232.71.

“Modest is best for the market at the moment,” said Scott Wren, senior equity strategist, AG Edwards and Sons. “The market is at the point where economic data that is good makes the bond and equities market nervous about what the Fed is going to do to interest rates. You want growth but modest non-inflationary growth.”

Google was back in focus, albeit for a different reason. After soaring past $427 a share earlier in the week, its shares fell 4.7 per cent, or almost $20, to $403.54. The retreat came after an analyst did the unthinkable and downgraded the stock.

Apple Computer, another stock which has seen intense demand this year, also went into reverse. The company, which has been bid up by investors in recent days on expectations of strong sales for its iPod nano music player, drop 2.2 per cent to $68.10.

Dell and Oracle, both of which have been struggling in recent weeks, saw a reversal of fortunes. The former rose 0.7 per cent to $30.42 while the latter gained 1.5 per cent to $12.73.

On the corporate front, Calpine plunged 56.8 per cent to $0.54 after the troubled power producer announced the departures of Peter Cartwright, its founder, and chief financial officer Robert Kelly. The fall came amid rumours that Mr Cartwright would not have left unless Calpine was preparing to file for bankruptcy.

Graphics chipmaker Nvidia lost 6.3 per cent to $35.48 after both Deutsche Bank and JPMorgan cut their ratings on the stock, with the latter citing valuation concerns.

“We believe that Nvidia stock, which has doubled over the past year and trades near its 52-week high of approximately $38, is fairly valued,” the broker said in a research note.

Merck staged a modest recovery, rising 1.6 per cent to $30.02 after its shares lost more than $3bn of its market value in the previous session.

News of record new homes sales failed to lift the housing sector. The Philadelphia Housing Index finished almost unchanged, up 0.04 per cent, after falling 2.8 per cent the day before. Pultes Homes rose 0.7 per cent to $41.85 while Toll Brothers lost another 1.6 per cent at $34.44.

US Steel, once a Dow component, gained 7.7 per cent to $45.78 following news that it had appointed a new chairman.

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