Retail sales in April doubled expectations, erasing visions of a slowing economy that have kept buying in U.S. Treasuries steady over the past several days. Instead, selling ensued on Thursday, as signs that the consumer is still buying stirred worries that the Fed might become more aggressive with its rate hikes.

Treasury yields, which move in the opposite direction of prices, began to rise and the selling continued. But a successful auction of 10-year notes reversed the course. Not only did buyers come back to Treasuries, but a steep dive in blue chips engendered safe-haven buying of bonds. Money flowed in from Wall Street, sending the yield on the 10-year to its lowest level in a week. While the decline in yields did not affect mortgage rates today, it is likely that those rates close to the next level could edge down.

Retail sales rose by an incredible 1.4 percent - way above the 0.7-percent increase that was expected and the best showing since September. In addition, the core rate, which excludes auto sales, showed an impressive 1.1-percent gain - outpacing the 0.6 percent rise forecast. Upbeat retail sales overshadowed the fact that first-time unemployment claims rose by 4,000 to 340,000, when a decline to 327,000 was expected. This is its highest level since April 2. The influential four-week average, which smoothes volatility, rose by 2,000 to 324,000. The four-week average for continued claims - people collecting benefits for more than one week - fell to 2.59 million, the lowest level since March 2001.

Wal-Mart's Bearish Report Drives the Dow Down

Disappointing earnings from Wal-Mart, the world's biggest retailer, sent shivers through the equity markets, and the results were grim. Worries about the economy and the consumer sent the Dow Jones Industrials down 111 points -- its seventh triple-digit loss in the past month. Not only did Wal-Mart miss on first-quarter sales and earnings, but it also warned on the second quarter and said its 2005 fiscal forecast could fall short. These words had far more impact on the Dow than the retail sales report did.

Another negative for the Dow was a steep decline in oil prices, which closed at $48.54 - well below the psychological level of $50 a barrel. The skid caused Exxon stock to drop. The 3.4-percent decline made it the Dow's biggest loser. Alcoa posted a 3-percent loss, and Wal-Mart, Caterpillar, Hewlett-Packard, and United Technologies were down 2 percent or more, while another six components lost more than 1 percent each. Only four components closed positive, and gains were small.

The Nasdaq was not as badly affected, and movements in the tech bellwethers were slim. Of the seven that closed in positive territory, only Oracle posted a healthy gain of more than 1 percent. On the other hand, Qualcomm was the only one to lose more than 1 percent, shedding 1.3 percent on the session.

At Closing:
The Dow 30 Industrial Index fell 110.77 points or 1.08 percent to end at 10,189.48; the Nasdaq Composite index lost 7.67 points or 0.39 percent to close at 1,963.88, and the benchmark Standard & Poor's 500 Index was down 11.75 points or 1.00 percent to end at 1,159.36.

At 4:00 PM EDT:
The 30-year Treasury bond was up 14/32 in price with the yield falling to 4.51 percent.
The 10-year Treasury note was up 6/32 in price with the yield falling to 4.17 percent.
The 5-year Treasury price was unavailable but the yield fell to 3.86 percent.

AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:
The 30-year Conventional Fixed-Rate Mortgage was at 5.566 percent from 5.582 percent at Wednesday's close.
The 15-year Conventional Fixed-Rate Mortgage was at 5.145 percent from 5.156 percent at Wednesday's close.

Coming Up:
A positive earnings report from Dell after the closing bell on Thursday could set a positive early tone for stocks on Friday. There are three economic reports due, but these have low impact. The University of Michigan's preliminary consumer sentiment survey for May will probably be the most anticipated, as it is tied to consumer spending, which has been a key topic of late. Analysts are expecting a reading of 88, which is just a tad higher than the April final reading of 87.7. Business Inventories for March are expected to increase 0.7 percent - a little stronger than the February showing of a 0.5-percent gain. Import/Export Price Indexes for April are also due. Overnight and into tomorrow it is possible that mortgage rates on some products may edge down due to the afternoon rally in U.S. Treasuries.