NEW YORK (Dow Jones) – The U.S. stock market opened lower on Friday, as investors retreated after the U.S. Federal Reserve unexpectedly raised the discount rate after Thursday’s close, but the drop was softened by a smaller-than-expected rise in consumer prices..

The Dow Jones Industrial Average was down 16 points, or 0.2%, to 10377 in early trading. Intel was the measure’s worst performer, down 0.9%. Bank of America was also weak, falling 0.8%. Market watchers expected major financial companies to suffer in wake of the Fed’s announcement, as the central bank slowly starts to make borrowing more expensive.

Checking some of the Dow’s declines, DuPont climbed 1%.

The Nasdaq Composite was down 0.4%. The Standard & Poor’s 500-share index fell 0.4%, with all of its sectors in the black. The telecommunications and technology sectors led the declines.

The market ended higher Thursday, but the Fed surprised investors shortly after the close by raising the rate it charges banks for emergency loans by a quarter-percentage point to 0.75%. While the move was generally expected, most market watchers didn’t anticipate that the central bank would begin implementing its exit strategy so soon or that it would come between the Fed’s monthly meetings.

Though the Fed stressed in an accompanying statement that the move isn’t intended to lead to a change in overall monetary policy, investors nonetheless said the rate hike was a reminder that the central bank’s extremely low interest rates are on their way up.

The view that a hike in the Fed’s main policy rate could come sooner than expected helped rally the dollar across the board. The U.S. Dollar Index–which represents the greenback against a basket of six other currencies–surged 0.8%.

Treasurys climbed, with the 10-year note up 3/16 to yield 3.786%. Meanwhile, crude-oil prices edged up to top $79 per barrel, while gold futures declined.

Lifting sentiment, a report showed that consumer prices barely rose in January from the previous month. The Labor Department said Friday that the seasonally-adjusted consumer price index rose 0.2% last month on the back of higher energy prices. Economists surveyed by Dow Jones Newswires had expected an increase of 0.3%. Meanwhile, core inflation, which strips out volatile energy and food items, fell for the first time since 1982.

Abroad, the Russian central bank on Friday announced cuts of 0.25 percentage point in its main refinancing rate, to 8.5%, and its repo rate, to 7.5%. The bank said it made the decision to spur bank lending in the economy, adding that there are no risks of rising inflation. A strong ruble has been a driving concern for the bank.

Among companies reporting earnings, J.C. Penney climbed 5.9% in early trading after its fiscal fourth-quarter earnings fell 5.2% but rose when excluding pension costs. The department-store operator also gave an optimistic outlook.

Dell slid 6.1% in early trades after reporting a dip in quarterly profit late Thursday but a gain in sales, with revenue for mobility and service units gaining on an annual basis. Gross margins fell short of some analysts’ expectations.

-By Kristina Peterson, Dow Jones Newswires; 212-416-2917; kristina.peterson@dowjones.com

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