updated 10/13/2004 10:12:10 AM ET 2004-10-13T14:12:10

Encouraged by a sharp drop in oil prices, Wall Street rebounded from its lows Tuesday and closed with a modest loss. The market drew support from upbeat earnings news from Johnson & Johnson and Merrill Lynch & Co. Inc.

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Initially, Wall Street’s worries over oil grew as the International Energy Agency raised its forecast for world demand, and as price speculation increased after the Russian government ordered the sale of part of Yukos, that nation’s top producer, to pay back taxes. While that pushed oil prices to a new intra-day high of $54.45 in early trading, prices later fell sharply in what analysts suggested was an overdue correction in prices.

A barrel of light crude settled at $52.51, down $1.13, on the New York Mercantile Exchange.

“I think this market is keyed in on oil and is ready to go if oil drops,” Bill Groenveld, head trader for vFinance Investments, said of stocks. “As soon as we see any relief in oil, and who knows when that will happen, I think the market starts to move north if there’s no earnings surprises this time around.”

The drop in oil also allowed investors to enjoy positive earnings from Johnson & Johnson, as well as a fairly good outlook from Merrill Lynch & Co. Inc., even though revenues at the brokerage were lower than expected. The bulk of earnings reports are still to come over the next few weeks.

At Tuesday's close the Dow Jones industrial average was down 4.79 points, or 0.1 percent, at 10,077.18, having slumped more than 64 points earlier in the session.

Broader stock indicators were slightly lower. The Standard & Poor’s 500-stock index was down 2.55 points, or 0.2 percent, at 1,121.84 by the close, while the tech-rich Nasdaq composite index was off 3.59 points, or 0.2 percent, at 1,925.17.

After five straight days of record-high closing prices for oil futures, the dip in oil prices was a relief on Wall Street. With third-quarter earnings already depressed due to the summer’s high fuel costs, the winter heating oil season could bring even more price pressure. That, investors feared, could lead to higher business costs and lower consumer spending, pressuring corporate margins in both directions.

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“It’s clear that the price of oil has reached a level that creates real questions about earnings and the economy in 2005,” said Hugh Johnson, chief investment officer at First Albany Corp. “Add to that concerns about third quarter earnings, though I think most people recognize they’re going to be lower than we’ve seen in the past.”

Johnson & Johnson gained $1.46 to $56.82 after beating both revenue and earnings estimates for the third quarter. Profits rose 13 percent from a year ago. Prescription drug and over-the-counter skin care sales helped boost revenues.

A rough quarter for the markets hurt Merrill Lynch’s earnings, as revenues fell 3 percent and earnings dropped 8 percent for the third quarter. The company blamed unusually light trading on Wall Street for lower revenues, which missed analysts’ forecasts, though the brokerage managed to surpass Wall Street earnings expectations by a penny per share and gave a brighter outlook for the fourth quarter. Merrill Lynch rose $1.48 to $52.48.

M&T Bank Corp. climbed $1.87 to $101.70 after it credited a strong loan business and higher interest income for a 19 percent surge in third-quarter profits. The company beat earnings expectations by 5 cents per share.

According to media reports, General Motors Co. will cut 12,000 jobs in Europe, one in six of its European workers, as part of a broad restructuring of its operations there. General Motors was up 38 cents at $41.80.

Intel Corp. slipped 33 cents to $20.28 before the release of its third quarter earnings statement, which was due after the session. The semiconductor maker warned last month that sales would be lower than expected due to inventory backlogs.

Overseas, Japan’s Nikkei stock average slid 1.3 percent. In Europe, Britain’s FTSE 100 closed down 0.8 percent, France’s CAC-40 fell 1 percent for the session and Germany’s DAX index dropped 1.5 percent.

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