Stocks sagged yesterday as the latest gross domestic product reading came in below expectations and raised more questions about the strength...

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NEW YORK — Stocks sagged yesterday as the latest gross domestic product reading came in below expectations and raised more questions about the strength of the economy — in spite of robust earnings and higher forecasts from Procter & Gamble and other companies.

The Dow Jones industrial average fell 128.43 to 10,070.37.

Microsoft, one of the 30 Dow stocks, which fell 54 cents to $24.45 in regular trading, gained back 26 cents in after-market trading following the release of its earnings report. The software giant’s earnings nearly doubled over last year, but its revenue failed to meet Wall Street expectations.

Boeing, also a Dow stock, slid 94 cents to $58.72.

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The broader gauges also fell. The S&P 500 index was down 13.16 at 1,143.22. The Nasdaq composite index declined 26.25 to 1,904.18, its lowest close since Oct. 14.

With more than 50 companies in the Standard & Poor’s 500 reporting results, it was one of the busiest days of the earnings season. But investors were distracted from mostly positive corporate news by the disappointing GDP report, which aggravated inflation worries and renewed concerns that Federal Reserve policy makers would take a more aggressive posture on rates when they meet next week.

“I think the GDP numbers have kept inflation on the front burner and that’s obviously weighing on the day’s action,” said Bryan Piskorowski, analyst at Wachovia Securities. “But bonds are not reacting super badly to these numbers. We’re at a pivotal point right now. What the bond market is trying to do is determine at what point do we see light at end of the tunnel with regard to the Fed? So we’re taking some solace in that.”

Higher energy prices and weaker consumer and business spending were a drag on the economy during the first quarter; the Commerce Department said GDP grew at an annual rate of 3.1 percent in the first three months of 2005, the slowest pace of expansion in two years. The broadest barometer of the economy’s health, GDP measures the value of all goods and services produced in the U.S. Economists had forecast growth of 3.5 percent.

An inflation gauge tied to the GDP report and closely monitored by the Fed showed a 2.2 percent rise in prices, excluding food and energy. That was up considerably from the 1.7 percent rate recorded in the fourth quarter, and marked the highest reading since the final quarter of 2001.

In addition to the day’s economic data, investors had a lot of corporate news to sift through, as well, with 52 companies in the S&P 500 reporting earnings before, during and after the session. Of the 308 S&P companies that had released results by Wednesday evening, 66 percent beat the consensus estimate of analysts surveyed by Thomson Financial, 16 percent matched expectations and 19 percent missed.

“Earnings for the most part have been OK, not blowout, but OK,” said Neil Massa, equity trader at John Hancock Funds. “But … the economic picture is still worrisome. The question … is how much more upside is there to equity stock prices when we’re in a rising interest rate environment?”