Stocks decline as oil prices creep higher

Wednesday, May 07, 2008 - 08:00 PM

By TIM PARADIS
AP Business Writer

NEW YORK

Wall Street retreated Wednesday as the price of a barrel of oil surged soared to a record near $124 and touched off concerns that recent gains in stocks might have been premature while consumers grapple with rising energy and food costs. The Dow Jones industrial average at times lost more than 200 points.

Sharp gains in commodities prices have drawn fresh attention from investors worried that consumers _ the lifeblood of the U.S. economy _ will be forced to pare spending to keep up with increasing costs for necessities.

Oil prices have doubled over the past year, causing gasoline prices to surge further into record terrain and strap debt-laden consumers with yet another financial burden.

Wall Street slid Wednesday amid a cacophony of worries about the effects of rising prices. Kansas City Federal Reserve President Thomas Hoenig in a speech late Tuesday cited inflation as his main concern. Treasury Secretary Henry Paulson said in an interview with The Associated Press Wednesday that while the worst of the credit crisis might have passed, rising gas prices will dampen the benefits from the 130 million economic stimulus checks that the government is distributing.

While some investors say recent stock market gains had come too quickly anyway, others say the market´s declines reflect more serious worries about the difficulties blanketing consumers.

Ed Peters, chief investment officer at PanAgora Asset Management in Boston, said, "It is going to be a drag if we continue to get rising prices. The oil prices is just symptomatic of a broader trend."

But Stephen Carl, head of equity trading at The Williams Capital Group, said that while rising oil prices appeared to rattle investors, many had also seen sizable gains from stocks in recent weeks and wanted to preserve their profits.

"Perhaps we fall away here for a few sessions," he said the S&P 500´s rebound to the 1,400 level might have been too hasty for some investors.

The Dow fell 187.18, or 1.44 percent, to 12,833.65, after fluctuating in earlier trading.

Broader stock indicators also declined. The Standard & Poor´s 500 index fell 22.87, or 1.61 percent, to 1,395.39, and the Nasdaq composite index fell 40.89, or 1.65 percent, to 2,442.42.

Bond prices rose as stocks pulled back. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.87 percent from 3.92 percent late Tuesday.

Light, sweet crude rose $1.69 to settle at $123.53 on the New York Mercantile Exchange.

The dollar rebounded against other major global currencies, and gold prices fell.

While stocks pulled back, the day was not without good news. The Labor Department said labor costs rose at an annual rate of 2.2 percent during the first quarter. That´s down from a 2.8 percent rise the previous quarter, suggesting that inflation pressures may be letting up.

But there have not been enough strong readings lately to give investors the nudge they need to push the Dow back above the four-month highs it reached last week. Market analyst Edward Yardeni noted that the Dow, the S&P 500 index and many key individual stocks are close to their 200-day moving averages.

"Not everybody´s a fan of technical analysis, but everyone knows that this is an important technical level," Yardeni said. "We need some really good bullish news to break above that average."

In corporate news, Clearwire and Sprint Nextel Corp. said they are planning to merge their wireless broadband units to create a new $14.55 billion wireless communications company. The new company is getting a $3.2 billion investment from Intel Corp., Google Inc., Comcast Corp., Time Warner Cable Inc. and Bright House Networks.

Clearwire slipped 1 cent to $16.45 and Sprint fell 1 cent to $9.18.

In earnings news, The Walt Disney Co. reported late Tuesday that profit in the most recent quarter rose 22 percent despite the Hollywood writers´ strike. Disney was the biggest gainer among the 30 Dow components, rising 97 cents, or 2.9 percent, to $34.70.

Yardeni noted that while the first-quarter earnings season began several weeks ago with worse-than-expected results from General Electric Co., it ended up bringing decent results, with earnings excluding the financial sector rising close to 10 percent.

"There is a perception in the markets we had a great move here since March, and that we need to take a break from the rally for a while," Yardeni said. "And then we´ll be set up for a summer rally."

The Russell 2000 index fell 12.41, or 1.70 percent, to 717.38.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.05 billion shares.

Overseas, Japan´s stock market rose 0.38 percent. Britain´s FTSE index closed up 0.74 percent, Germany´s DAX index rose 0.84 percent, and France´s CAC-40 rose 0.68 percent.

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