updated 9/30/2004 9:46:18 AM ET 2004-09-30T13:46:18

Oil prices reached a new high and sent stocks lower Monday, pushing the Dow Jones industrials back below 10,000. But with trading on Wall Street light and losses only moderate, investors seemed to be coming to terms with near-$50 per barrel crude.

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As a barrel of light crude for November delivery settled at $49.64, up 76 cents on the New York Mercantile Exchange, stock investors grew more fearful that rising energy prices would slice into corporate profits. Monday’s close for crude broke the previous record settlement price of $48.88 set Friday, and prices reached $49.75 earlier in the session, marking the highest intraday trading level ever recorded.

However, analysts believed that Wall Street, which sold off substantially last week in response to oil’s climb, had found a bottom and that some investors were becoming optimistic that a year-end rally might be possible.

“Clearly we’ve had oil putting a lot of pressure on this market over the past week or so, but given where oil is right now, we would’ve expected the market to react even more negatively than where it is,” said Brian Belski, market strategist at Piper Jaffray. “With productivity and earnings still pretty strong, and inflation tame aside from oil and gas, we think the market still is set up for a positive move in the fourth quarter.”

The Dow Jones industrial average fell 58.70, or 0.6 percent, to 9,988.54. It was the Dow’s lowest close since Aug. 17, when it last closed below 10,000.

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Broader stock indicators were moderately lower. The Standard & Poor’s 500 index was down 6.59, or 0.6 percent, at 1,103.52, and the Nasdaq composite index dropped 19.60, or 1 percent, to 1,859.88.

Oil producers and refiners still struggled to recover from Hurricane Ivan’s damage in the Gulf of Mexico, and global demand continues to tighten, analysts said, making the markets susceptible to even minimal losses in overall production. And investors are worried that if prices rise at the gas pump, consumer spending might be pared back just as retailers prepare for the holiday shopping season.

However, given the relatively small drop in share prices Monday, investors may be accepting the fact that oil prices are in the $40 to $50 range, said Brian Pears, head equity trader at Victory Capital Management in Cleveland.

“Obviously, the closer to $40 we are, the better off we’ll be,” Pears said. “As you reach $50, you get the risk of speculation. But the inflation data over the past few months has been muted, and it doesn’t look like oil is going to have a big impact on the economy, just as long as we can stay at least steady at this price level.”

If oil can stay around $50 or less, investors will likely look ahead to third- and fourth-quarter earnings. And with expectations for the third quarter very low after a string of earnings warnings this month, there’s a chance the actual results will be come as a pleasant surprise to Wall Street.

The Commerce Department reported new home sales rose 9.4 percent to 1.184 million units in August, a higher figure than economists had forecast. While somewhat overshadowed by oil, the data showed that consumers were still willing to make big purchases even as the economy has slowed.

In corporate news, mortgage giant Fannie Mae climbed 99 cents to $66.50 after striking a deal with regulators in which the company agreed to investigate its top management, including its chief financial officer, and raise additional capital. Morgan Stanley downgraded Fannie Mae to “underweight” from “overweight” due to the investigation.

Wal-Mart Stores Inc. was upgraded to “buy” from “neutral” by Banc of America, which said the recent selloff in the company’s shares, combined with promising profit potential, made the stock attractive. Wal-Mart fell 29 cents to $52.52.

Walgreen Co. rose 22 cents to $36.48 after announcing that its profit rose 18.1 percent in the fourth quarter, beating quarterly estimates by a penny per share, thanks to higher prescription sales.

J.P. Morgan Chase & Co. said Monday it would purchase a majority stake in Highbridge Capital Management, a major hedge fund, for about $1 billion. J.P. Morgan Chase slipped 62 cents to $39.13.

Tommy Hilfiger Corp., which announced it is under investigation for its accounting practices, was downgraded to “underweight” from “overweight” by Prudential Equity Group. The clothier was down $2.87 at $10.30.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume came to 1.57 billion shares, compared with 1.55 billion on Friday.

The Russell 2000 index of smaller companies was down 7.61, or 1.3 percent, to 558.36.

Overseas, Japan’s Nikkei stock average fell 0.3 percent. In Europe, Britain’s FTSE 100 closed down 0.8 percent, France’s CAC-40 dropped 0.5 percent for the session and Germany’s DAX index lost 0.9 percent.

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