Materials stocks fall on fear of Chinese rate hike

Worries that China may raise its interest rates sent copper, oil and the companies that produce them lower Thursday.

Commodities fell sharply after China reported that its economy expanded 10.3 percent in 2010, renewing concerns that the country's central bank will increase borrowing rates to slow growth. China's inflation surged 4.6 percent in December.

Demand from China has been a big factor in sending commodities prices surging over the past year. Companies that produce commodities, such as aluminum maker Alcoa Inc., have been counting on that demand to continue.

"All investors and companies these days are clinging to this Chinese demand story," said Jack Ablin, chief investment officer at Harris Private Bank. "And anything that could cause that to falter could have ugly implications."

Oil and copper fell more than 2 percent. Silver fell 5 percent. Freeport-McMoRan Copper & Gold Inc. dropped 4 percent even after the mining giant reported 60 percent higher income in the fourth quarter as a result of higher copper and gold prices. DuPont fell 1.1 percent and Dow Chemical Co. fell 2.2 percent.

The decline in commodities was tempered by slightly better news on the U.S. job market. The Labor Department reported that the number of people filing claims for unemployment benefits for the first time fell to 404,000 last week, below forecasts.

The better economic news pushed bond prices lower. The yield on the 10-year Treasury note rose to 3.45 percent from 3.34 percent late Wednesday. Yields move in the opposite direction of prices.

The Dow Jones industrial average edged up 5 points, or 0.1 percent, to 11,831 in afternoon trading.

The Standard & Poor's 500 index fell less than a point, remaining at 1281.The Nasdaq composite index fell 19, or 0.7 percent, to 2,707.

Utility companies in the S&P 500 index rose 1 percent and makers of consumer staple products rose 0.6 percent. Cereal maker General Mills Inc. rose 3.4 percent.

Morgan Stanley rose 5 percent to $29.05 after reporting that its fourth-quarter income jumped 60 percent thanks to strong investment banking revenues.