updated 7/11/2007 8:53:24 AM ET 2007-07-11T12:53:24

Stocks plunged Tuesday as investors, nervous about upcoming earnings reports, cringed at troubling forecasts from retailers Home Depot and Sears and at soaring oil prices. The Dow Jones industrial average fell more than 100 points.

Major Market Indices

The market seemed to be following the pattern of previous earnings seasons, turning lower as second-quarter reports had a rocky start. Home Depot Inc., Sears Holdings Corp. and homebuilder D.R. Horton Inc. offered dreary outlooks that suggested the sluggish housing market may dampen consumer spending.

The outlooks followed Monday’s news that aluminum producer Alcoa Inc.’s second-quarter sales missed estimates and that printer manufacturer Lexmark International Inc. slashed its second-quarter earnings forecast. Together, the reports dispirited investors who had been counting on corporate America’s performance giving a boost to the stock market, which has been stuttering in recent weeks.

“People are a little bit skittish about the health of the consumer,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

As the U.S. dollar tumbled and investors fled to the relative safety of Treasury bonds, the stock market dropped further after oil prices briefly spiked above $73 a barrel, raising concerns about Americans’ energy bills.

Wall Street — which often trades erratically amid profit warnings before the quarterly earnings flood — also weakened due to ratings agency Standard & Poor’s, which said it may lower the credit rating of more than $12 billion in bonds backed by risky home loans. Such loans are sold by some of the nation’s largest banks.

According to preliminary calculations, the Dow fell 148.27, or 1.09 percent, to 13,501.70, near its low of the session.

Broader stock indicators also declined. The Standard & Poor’s 500 index fell 21.73, or 1.42 percent, to 1,510.12, while the Nasdaq composite index was off 30.86, or 1.16 percent, at 2,639.16.

Bond prices soared, pushing down the 10-year Treasury note’s yield to 5.03 percent from 5.16 percent late Monday. The plunge in yields failed to boost stocks, largely because the decrease was caused by worries about the housing market rather than confidence that inflation is easing.

A speech by Federal Reserve Chairman Ben Bernanke in Cambridge, Mass., did not offer much insight into the central bank’s next move, and instead focused on how the Fed makes its inflation-fighting decisions. Investors are curious whether the bank will raise interest rates later this year to rein in inflation, given soaring food and energy prices.

Crude oil futures climbed 62 cents to $72.81 a barrel on the New York Mercantile Exchange, after momentarily surpassing $73 a barrel, their highest point since late August.

“Incrementally, high energy prices do shift consumer spending habits, and do force people to spend money where they don’t necessarily want to, but where they need to. That has implications for earnings,” Caffrey said.

The dollar dropped to a new low versus the euro Tuesday and a 26-year low against the British pound. Gold prices rose.

The financial and retail sectors saw significant losses on jitters about subprime lending and consumer spending. JPMorgan Chase & Co., American Express Co. and Wal-Mart Stores Inc. were the big losers among the 30 Dow companies.

Sears plunged $17.10, or 10 percent, to $154.31 after issuing its guidance, and D.R. Horton fell 38 cents, or 2 percent, to $19.41.

Home Depot rose 8 cents to $40.31, though, after saying it is launching a tender offer for 250 million shares of its common stock.

Not all of Tuesday’s guidance was disappointing: Pepsi Bottling Group Inc., one of the world’s largest distributors of Pepsi drinks, raised its outlook for full-year earnings, and its stock rose $1.45, or 4.2 percent, to $35.88.

But overall, “I don’t think it’s been a great day-and-a-half of earnings reporting,” said Stephen Carl, principal and head of equity trading at The Williams Capital Group.

Dow component General Motors Co. and its rival Ford Motor Co. also gained after a JPMorgan analyst upgraded the shares of both automakers. GM rose 69 cents to $37.46, and Ford rose 2 cents to $9.10.

Declining issues outnumbered advancers by nearly 3 to 1 on the New York Stock Exchange, where volume came to 1.46 billion shares.

The Russell 2000 index of smaller companies fell 15.76, or 1.85 percent, to 837.48.

Investors found little relief in the Commerce Department’s report that May wholesale inventories rose 0.5 percent, more than in April and slightly higher than expected.

In Asian trading, Japan’s Nikkei stock average fell 0.05 percent; Hong Kong’s Hang Seng Index rose 0.3 percent to a sixth straight record close; and China’s Shanghai Composite Index fell 0.8 percent.

In European trading, Britain’s FTSE 100 fell 1.22 percent, Germany’s DAX index fell 1.39 percent, and France’s CAC-40 fell 1.40 percent.

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