updated 4/1/2005 8:15:42 AM ET 2005-04-01T13:15:42

Stocks sagged Thursday, ending a lackluster quarter in negative ground, as investors weighed rising U.S. incomes and consumer spending against lofty oil prices, which climbed following an investment bank’s suggestion that energy was in the early stages of a bull market.

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The report from Goldman Sachs warned oil was entering a “super spike” period that could drive prices as high as $105 per barrel, but many on Wall Street were skeptical about the call.

The only thing that could take crude to such high levels would be a major disruption in supply from Iran, Iraq or Saudi Arabia, which seems unlikely at this point, said Tracy Herrick, chief economist for the Private Bank of the Peninsula, in Palo Alto, Calif.

The report seemed to have an impact on trading, nonetheless; crude futures surged $1.41 to $55.30 per barrel on the New York Mercantile Exchange — difficult for stock investors to ignore.

“The important thing today, the only thing of significance, is the oil figure,” Herrick said. “That is the most troubling thing for the market because it has a long-term negative effect on the economy and could act as a drag on profits. Everything else indicates the economy is in glide path for continued strength. The increases in interest rates so far have had no impact on the economy, so that’s not an issue. Oil is the issue.”

The Dow Jones industrial average was down 37.17 points, or 0.4 percent, at the close, while the broader Standard & Poor’s 500-stock index was off 0.82 point, or 0.1 percent. The technology-rich Nasdaq composite index slipped 6.44 points, or 0.3 percent.

For the quarter and the year, which ended at Thursday’s close, the Dow fell 2.6 percent, while the S&P 500 index ended its worst quarter since 2002 with a 2.6 percent loss. The Nasdaq composite finished the quarter down 8.1 percent for the quarter.

Treasurys rose for a third day, with the yield on the 10-year note dropping to 4.48 percent, from 4.55 percent late Wednesday. The U.S. dollar fell against other major currencies. Gold prices rose.

Hiring gains sent U.S. incomes up by 0.3 percent in February, but consumer spending climbed at an even faster 0.5 percent pace, the Commerce Department reported. Further gains in incomes and consumer spending are expected in the months ahead.

Separately, orders to U.S. factories rose by 0.2 percent in February as strong demand for commercial aircraft, steel and computers offset a drop in demand for new cars and industrial machinery. The gain was weaker than the 0.5 percent increase that many economists had been expecting, but it still represented an improvement following no change at all in January orders.

The Labor Department reported that the number of Americans filing new claims for unemployment benefits rose to its highest level in 11 weeks, up 20,000 to 350,000 last week. However, the broader, four-week moving average remains low enough to suggest continued job creation. Wall Street expects Friday’s job creation report to show about 220,000 new jobs for March.

“My guess is the number is not going to surprise much and the major market averages are going to try to extend on the upside,” said Jeffrey D. Saut, chief investment strategist at Raymond James & Associates. “The question is, is it going to be one of these three- to five-day oversold, throwback rallies, or is it going to develop into something more meaningful? I don’t think you’re going to be able to tell that until next week.”

On the Dow, AIG slid $1.75 to $55.41 after a second bond rating agency cut the insurance holding company’s premium triple-A ranking amid a swelling investigation of accounting irregularities.

Johnson & Johnson shed 89 cents to $67.16 on news that its DePuy Orthopaedics Inc. unit had received a subpoena from the U.S. Attorney’s Office in Newark, N.J., for documents related to consulting and service contracts with orthopedic surgeons.

Shares of department store retailers J.C. Penney Co. and Saks Inc. were higher amid rumors that private equity firm Cerberus may bid for Penney, and published reports that Saks is seeking to spin off its Saks Fifth Avenue division. Penney was up 8.4 percent, or $4.02, at $51.92; Saks rose 9.1 percent, or $1.50, to $18.05.

Irish drug maker Elan Corp. PLC plunged 54 percent, or $3.74, to $3.24, and Biogen Idec Inc. fell 10 percent, or $3.84, to $34.51, after the companies confirmed a third patient taking their suspended drug Tysabri had contracted a rare neurological disease. The news cast greater doubt on hopes the drug could return to sale this year, if ever.

Overseas, Japan’s Nikkei stock average added 0.89 percent. In afternoon trading in Europe, France’s CAC-40 rose 0.08 percent, Britain’s FTSE 100 slid 0.13 percent and Germany’s DAX index inched up 0.03 percent.

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