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Rising fears about the nuclear crisis in Japan along with disappointing U.S. economic news sent stocks falling Wednesday.

Stocks opened lower then dropped sharply in midmorning trading after the European Union’s energy chief was quoted as saying that Japan’s nuclear crisis could get worse.

Japan temporarily suspended work at a stricken nuclear plant after a surge in radiation made it too dangerous for workers to remain there. That came a day after Japan’s prime minister said four crippled reactors at a nuclear power plant were leaking dangerous amounts of radiation.

The Dow Jones industrial average fell 165, or 1 percent, to 11,689.

The Standard & Poor’s 500 index fell 17, or 1.4 percent, to 1,264. All 10 company groups in the S&P 500 fell.

The Nasdaq composite index fell 39, or 1.5 percent, to 2,627.

Investments used as refuges from risk rose broadly. Bond prices rose, sending yields lower. The yield on the 10-year Treasury note fell to 3 short term personal loans.21 percent, near the lowest level this year. Gold, silver and copper all rose.

Investors are concerned about the effects that the quake, tsunami and evolving nuclear plant crisis could have on Japan. Japan’s economy, the third-largest in the world after the U.S. and China, accounts for about 10 percent of U.S. exports.

The Commerce Department reported that new home construction fell to the second-lowest level on record in February, reflecting weak demand. Homebuilder Lennar Corp. fell 3 percent, while Pulte Group Inc. and D.R. Horton Inc. each fell 2 percent.

Wholesale prices rose last month by the most in nearly two years due to higher energy costs and the biggest increase in food prices in 36 years. Shares of companies affected by higher food costs fell. McDonald’s Corp. and Starbucks Corp. both fell 1 percent.

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European Central Bank President Jean-Claude Trichet said the ECB may raise interest rates next month for the first time in almost three years to fight mounting inflation pressures.

An “increase of interest rates in the next meeting is possible,” Trichet told reporters in Frankfurt today after the central bank set its benchmark rate at a record low of 1 percent for a 23rd month. “Strong vigilance is warranted,” he said, adding that any move would not necessarily be the start of a “series.”

The comments surprised economists and investors, most of whom hadn’t expected the ECB to raise rates before August. The euro jumped more than 0.9 percent to $1.3976, the highest since November. German government bonds, a benchmark for Europe, dropped, sending the yield on the two-year bund 18 basis points higher to 1.713 percent.

Trichet is signaling tighter policy at a time when Ireland and Greece are struggling to cope with the terms of last year’s European Union bailouts and governments are hammering out a plan to draw a line under the crisis. The danger is that raising rates to tackle inflation will exacerbate the financial tensions that still run through euro region bond markets.

‘The ECB Will Hike’

“The ECB will hike rates by 25 basis points in April and I wouldn’t be surprised to see another increase in September or October,” said Natascha Gewaltig, chief European economist at Action Economics in London, who forecast before today’s meeting that the ECB would tighten policy in the first half. “Inflation expectations are picking up, that’s a clear signal for rate setters.”

The ECB is concerned about so-called second-round effects, when companies raise prices and workers demand more pay to compensate for soaring energy and food costs, entrenching faster inflation. Crude oil surged above $100 a barrel last week amid political tensions in the Middle East and North Africa. Euro- area inflation accelerated to 2.4 percent last month.

“There is a strong need to avoid second-round effects,” Trichet said, calling for moderation from wage and price setters. The ECB is “prepared to act in a firm and timely manner.”

He signaled any rate move would likely be a quarter-point step, saying a bigger increase would not be appropriate in his view. A rate increase in April would put the ECB ahead of its U.S. and U.K. counterparts.

Federal Reserve

Federal Reserve Chairman Ben S. Bernanke said on March 1 that the surge in oil and other commodity prices probably won’t cause a permanent increase in broader inflation and repeated that U.S. borrowing costs are likely to stay near zero.

The Bank of England may be moving closer to raising its key rate from 0.5 percent, with three of its nine policy makers voting for an increase last month.

China on Feb. 8 raised rates for the third time since mid- October to curb inflation and prevent its economy from overheating.

The ECB today raised its inflation and growth forecasts.

Inflation will average 2.3 percent this year, up from a December forecast of 1.8 percent and in breach of the ECB’s 2 percent limit, before slowing to 1.7 percent in 2012, the projections show. The 17-nation euro-area economy will expand 1.7 percent this year and 1.8 percent next, up from previous forecasts of 1.4 percent and 1.7 percent, according to the ECB.

Debt Crisis

At the same time, Europe’s debt crisis is far from over, with politicians yet to agree on new steps to bolster the region’s rescue fund.

While governments are cutting spending to rein in deficits, risk premiums for Spain, Portugal and Italy have increased since a Feb. 4 EU summit that failed to endorse an economic competiveness plan proposed by Germany and France as a condition for aid.

“The ECB is preparing to raise rates too early,” said Julian Callow, chief European economist at Barclays Capital in London. “It should give the euro-area economy more chance to get on a sustainable footing, particularly since it is still too early to tell how the intense fiscal consolidation in many countries will affect demand this year and next.”

Trichet said the ECB will keep its emergency liquidity measures in place at least through the end of the second quarter to help soothe tensions in financial markets. The ECB is lending banks as much money as they want at its benchmark rate for periods of up to three months.

Liquidity Measures

“Trichet was much more cautious on the liquidity front,” said Marco Valli, an economist at UniCredit Group in Milan. “This confirms that standard and non-standard measures in the ECB’s strategy are very much separated. We think that rate hikes throughout 2011 will take place with full allotment still in place, at least for weekly operations.”

The ECB last raised rates in July 2008, just before the global financial crisis intensified. It was then forced into an unprecedented series of rate cuts to prop up the economy. That’s unlikely to happen this time, said Jens Sondergaard, an economist at Nomura International in London, who now expects three quarter-point rate increases from the ECB this year.

“The sovereign debt crisis would have to intensify significantly for the ECB to delay the start of the rate hiking cycle,” he said. “The message from today’s meeting is clear: with inflation risks crystallizing, the ECB stands ready to act in April.”

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Ireland’s government braced itself for a heavy defeat Friday as voters went to the polls enraged about public service cuts, higher taxes, soaring unemployment and the country’s embarrassing bailout.

The opposition Fine Gael party has enjoyed a wide lead in opinion polls during a campaign dominated by debate on how to rebuild an economy brought low by the collapse of a property boom, which in turn led to a bailout of Ireland’s banks. Unemployment has soared to more than 13 percent.

The opposition has used Ireland’s dire economic situation as a rallying call for change _ Fine Gael leader Enda Kenny, 60, campaigned in northwestern Ireland on Thursday, urging voters to “turn your anger into action.”

The governing Fianna Fail party is bracing for a rout. It led the government through Ireland’s boom years in 1994-2007 and into the economic meltdown that precipitated a humiliating bailout from the European Central Bank and the International Monetary Fund.

In his final appeal on Thursday, Kenny spoke of a nation “reeling from the national confidence trick pulled on us by the government and those they ceded power to: developers and banks. Every week, a thousand mothers and fathers watch their children pack up their lives, put their degrees in beside their dollars and their bitter disappointment and head for Sydney, Brisbane and Vancouver.”

“I’m asking people to turn their anger into action and vote with their power, vote with their pride, vote for our plan _ the only plan _ that will get Ireland working,” Kenny said Payday advance.

The Labour Party hoped to pile up enough votes to deny Fine Gael an outright majority in the Dail, the lower house of Parliament, and secure Labour a place in a coalition government.

That pitch appealed to Mark Fortune, a civil servant who fear Fine Gael’s plans to cut 20,000 public service jobs.

“I think Labour would hold them back a bit,” Fortune said.

Margaret Leehy, a young nurse, wanted to vote for Fine Gael but she was far away from the constituency in Cork where she is registered.

“I think they are the best of a bad lot,” she said, adding that she and her husband are both working full time to make ends meet.

Ireland’s plight has inspired a lively contest with a record 566 candidates including 179 independents for the 166 seats in Ireland’s lower house in parliament, the Dail. Nearly 49,000 people have rushed to register to vote in recent weeks.

Opinion polls suggest that Ireland’s 3.1 million voters will usher in a new government led Fine Gael party, which until now has been the perennial runner-up to Fianna Fail.

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European Central Bank Executive Board member Juergen Stark said the bank will raise interest rates if necessary to keep inflation in check.

“We’re prepared to act decisively and immediately if needed,” Stark said at an event in Frankfurt last night. “The objective is pretty clear. In order not to risk un-anchoring inflation expectations, we have to change the monetary policy stance if need be.”

Stark is the latest policy maker to signal the ECB is moving toward raising borrowing costs in coming months after inflation breached its 2 percent ceiling, accelerating to 2.4 percent in January. Officials may be laying the groundwork for a shift in policy bias at their next meeting on March 3, when the central bank is due to publish its latest inflation forecasts.

Executive Board member Lorenzo Bini Smaghi said yesterday that with the 17-nation euro-area economy gathering strength, the ECB may need to reassess whether its benchmark rate is still appropriate at a record low of 1 percent.

The ECB may raise its key rate by a quarter-point in September, Eonia forward contracts show.

“Risks to the medium-term outlook for price developments in the euro area as a whole could move to the upside,” Stark said. “I can assure you that we will act quickly and decisively on any indications” of a wage-price spiral and higher inflation expectations, he said.

Oil, Wages

Crude oil prices have surged 24 percent over the past six months, pushing up import prices and adding to pressure on labor unions to secure bigger pay increases for workers.

In December, the ECB predicted inflation will average 1.8 percent this year and 1.5 percent in 2012.

Stark said inflation is now “likely to stay” above 2 percent through 2011 before moderating in 2012. The ECB must take “seriously” the warning signals for more persistent upward pressure on prices, he said.

ECB President Jean-Claude Trichet reiterated on Feb. 19 in Paris that inflation risks could move to “the upside.” The same day, Bundesbank President Axel Weber said inflation pressure is increasing and “clearly there are risks to the upside.”

ECB council member Athanasios Orphanides told Dow Jones in an interview published yesterday that inflation may stay above 2 percent “somewhat longer than we expected before” and the bank “must be ready to act as appropriate to safeguard price stability.”

Faster growth may fan inflation, even as some of the euro region’s peripheral nations remain mired in a sovereign debt crisis.

Business confidence in Germany, Europe’s largest economy, surged to a record this month and expansion in the euro region’s service and manufacturing industries accelerated to the fastest pace in more than four years, reports showed yesterday.

“Latest economic developments suggest that the monetary policy of the ECB, that has already been accommodative, has become even more accommodative,” Stark said. “To the extent that financial market conditions continue to improve and the current economic recovery turns out to remain strong and self- sustained, the stance would need to be normalized over time.”

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There have been plenty of hockey fights started because of beer. Now there

Portuguese train engineers went on strike Tuesday, stoking pressure on the government as it cuts pay and hikes taxes to tackle a debt crisis that is threatening to engulf the country.

Thousands of commuters were left stranded during morning rush hour as the national rail company said over 90 percent of trains didn’t run.

Portugal ran up high debts during the past decade amid frail growth, and the government is scrambling to avoid asking for a bailout like the ones needed by fellow eurozone countries Greece and Ireland last year.

But the interest rate on Portuguese 10-year bonds rose to 7.46 percent Tuesday _ not far shy of the level that forced Dublin to ask for help.

The battle to solve Portugal’s financial crisis is taking a political and financial toll, and the country’s failure to escape a bailout would add new momentum to Europe’s economic troubles.

European finance ministers meeting in Brussels on Monday announced no new decisions on boosting the size and powers of the bloc’s fund to rescue its heavily-indebted members. The delay is worrying markets, and investors are asking for higher returns on what are perceived as risky loans to Portugal _ compounding the country’s already huge financial problems.

Finance Minister Fernando Teixeira dos Santos said in Brussels he wanted the European fund to be able to buy bonds on the open market, thereby helping to stabilize their prices, but finding a compromise among the 17 nations that use the euro was proving hard.

“This process is taking longer than it ought to, in my opinion, and I think the delays and hesitation in taking the steps we need are affecting the eurozone and the stabilization of the euro and, consequently, all the countries which belong to the eurozone,” Teixeira dos Santos told Portuguese media.

Portugal plans to raise up to euro1 billion ($1.3 billion) in a sale of 12-month Treasury bills Wednesday. So far it has had no problems getting funds on international markets, but the rates are punishingly high.

The center-left Socialist government says it reduced the budget deficit to 7.3 percent last year from 9.6 percent _ the fourth-highest in the eurozone _ in 2009. Its austerity plan aims to cut the deficit to 4.6 percent this year.

However, analysts expect the money-saving measures to send Portugal into recession. That would hurt tax revenue and place further stress on the budget, which is already being drained by high interest rates on its borrowings and increased welfare payments resulting from an unemployment rate close to 11 percent.

There was some good news for the minority government, though, when a small party said it would abstain from a no-confidence vote, ensuring the attempt to force an early election will fail.

The Left Bloc, a small, radical party which competes for support with the Communist Party, intends to present the motion in Parliament on March 10. The Popular Party announced late Monday it would abstain in the vote.

The government is also resisting a popular outcry against the austerity package, which includes a 5 percent pay cut for staff at state-owned companies this year. Those companies have total debts of more than euro21 billion ($28.2 billion) with public transport companies, including the national rail company.

The government is demanding that state companies save 15 percent on operating costs this year.

Tuesday’s rail strike was the latest in a wave of walkouts.

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OTTAWA

The recall beat continues at Toyota but the auto giant says it thinks the biggest public relations nightmare in its history is behind it.

The automaker, seen by many as the best of its breed, issued recalls 17 times last year to alert owners of more than 700,000 Canadian vehicles about the need for dealer inspections and possible repairs on defective parts or conditions.

It reached the point where some industry watchers felt Toyota was unnecessarily undermining its reputation and entrenching negative perceptions with disclosure and repairs on minor glitches.

They said the notices would just make it harder for Toyota to sell cars and trucks for a longer time.

A few recalls involved parts that rival automakers also used but those rivals didn

A bloc of Latin American countries issued a stern warning to rich nations Friday that unless they commit to new emissions cuts, the U.N. climate talks in Cancun will fail.

Negotiators from Venezuela, Bolivia, Nicaragua and Ecuador _ all members of the leftist ALBA alliance _ said they would not accept the refusal by some developed countries to extend their binding emissions targets under the Kyoto Protocol, the climate pact that expires in 2012.

Venezuela and Bolivia were among a handful of countries that blocked a nonbinding climate accord with voluntary emissions pledges from being adopted at last year’s U.N. climate conference in Copenhagen. The rules of the talks require consensus.

Without naming them, Venezuelan negotiator Claudia Salerno said “a handful” of developed countries had ruled out a second commitment period under Kyoto. She called their stance “unacceptable” and said it could hold back progress on other issues being discussed in Cancun.

“If there is no second period of Kyoto, it is very difficult that there can be any balanced package” of decisions in Cancun, Salerno said.

The fate of the Kyoto Protocol, or the shape of any agreement that succeeds it, is one of the most divisive issues in the negotiations.

Earlier this week Japan said it was not interested in negotiating an extension of the Kyoto targets, arguing it was pointless unless the world’s largest polluters _ China is No free business cards. 1, and the U.S. No. 2 _ also accepted binding targets. U.N. climate chief Christiana Figueres said Russia and Canada also oppose extending their Kyoto targets.

For 13 years, since it was negotiated, the United States has rejected the Kyoto accord, partly because it made no demands on rapidly developing countries like China and India.

Venezuela and Bolivia and other members of the ALBA bloc argue that climate change is the result of a capitalist system and demand steep emissions cuts from industrialized countries deemed to have a historical responsibility for the release of carbon dioxide and other heat-trapping gases into the atmosphere.

Figueres said she wasn’t expecting the positions of the ALBA nations and the developed countries to “dramatically change” in Cancun.

“What needs to happen here is countries need to find a compromise,” she said.

She and other U.N. officials hope for agreements on secondary issues at Cancun, and expect this central dispute to extend into next year’s negotiations.

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Associated Press writer Mark Stevenson contributed to this report.

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This is going to be a hectic week for followers of initial public offerings. Ten companies are currently on tap to make their debut.

If you didn’t know any better, you’d think it was 1998 all over again — except for one thing. There aren’t any major tech companies on this week’s docket.

General Motors, of course, is grabbing all the headlines. The automaker is tentatively set to return to the public markets (GM ticker and all) on Thursday.

The government is selling a portion of the stake it acquired in GM as part of its bailout. The hope is that a leaner-and-meaner post-bankruptcy GM will eventually generate a profit — or at the very least, a smaller loss — for taxpayers.

But GM is not the only well-known firm that’s going to test the public markets. Caesars Entertainment, the casino company formerly known as Harrah’s Entertainment, is set to start trading this week too. Ditto for big consulting firm Booz Allen Hamilton and brokerage firm LPL Financial.

But none of those companies are your classic IPO candidates — hot, rapidly growing upstarts backed by venture capital firms. Instead, Caesars, Booz Allen Hamilton and LPL all count private equity firms as their main investors.

Caesar’s, back when it was still known as Harrah’s, was bought in 2008 by Apollo Management and TPG. One of the main investors in Booz Allen Hamilton is the Carlyle Group. And LPL is majority-owned by Hellman & Friedman and TPG.

This is an interesting trend that isn’t expected to change any time soon. If you look at a list of some of the more high-profile firms that have already filed to go public, you won’t find sexy Silicon Valley darlings like Facebook, Twitter, Zynga and LinkedIn.

None of those firms are expected to file for an IPO until next year, at the very earliest. Many think it won’t be until 2012 or 2013 that any of social networking’s Big Four become publicly traded companies.

Experts say it’s a sign of the times. With the economy still merely chugging along as opposed to solidly growing, the best candidates to go public are companies that are turnaround stories, not hot growth stocks.

"Private equity firms buy things out of the rubble, companies that were cold- shouldered by the market. They buy companies on the cheap, clean them up and take them public again," said Ben Holmes, founder of MorningNotes.com, a Boulder, Colo.-based research firm focusing on IPOs and secondary offerings.

GM clearly fits that bill. Just substitute the "Treasury Department" and "taxpayers" for "private equity firms."

Holmes does not expect a comeback in venture-backed tech IPOs until it’s clearer that the recovery in the economy is real and sustainable.

Josef Schuster, CEO of IPOX Capital Management, a Chicago-based firm that oversees the Direxion Long-Short IPO Fund, agreed. The price gains for private-equity backed IPOs are likely to be muted in the short-term, since they don’t have a lot of immediate growth potential, he added.

"These stocks probably won’t pop at the open, but they all look reasonable as investments for the long-run," Schuster said.

The window for venture-backed IPOs hasn’t completely slammed shut. But investors looking for more exciting new stocks may have to take risks on smaller companies based outside the United States.

Schuster points out that one of the better-performing recent IPOs is a Chinese company that did have venture backing. Mecox Lane (MCOX), a Shanghai-based online apparel retailer, shot up 57% on its first day of trading late last month.

Sequoia Capital — the venture capital firm that has invested in Apple (AAPL, Fortune 500), Google (GOOG, Fortune 500), Oracle (ORCL, Fortune 500) and many other successful tech companies — is one of the investors in Mecox Lane. Sequoia also invested in another recent Chinese IPO, although not in the tech world: It’s a backer of vegetable producer Le Gaga (GAGA).

Along those lines, another Chinese venture-backed company is set to go public this week. Schuster said he would not be surprised if it wound up trumping GM as the week’s top IPO performer.

BitAuto, a Beijing-based company that provides Chinese consumers with online pricing information about cars, is scheduled to start trading later this week. Venture capital firms DCM and Legend Capital are two of BitAuto’s investors.

It may not be the worst thing in the world that the IPO calendar is currently dominated by stodgier companies. It seems investors learned their lesson from the dot-com bubble in 2000: The days of getting rich quick off a tech IPO are long gone.

With that in mind, Holmes said that of all of this week’s IPOs, the one to watch is GM.

"GM is important for the psychology of the market. It may be a case of ‘as goes GM, so goes stocks’ for the rest of the year," he said. "It feels like we really are crawling out of the hole."

- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney.com, and Abbott Laboratories, La Monica does not own positions in any individual stocks.  

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