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updated 4/14/2005 7:43:33 AM ET 2005-04-14T11:43:33

A sharp slide in crude oil prices wasn’t enough to keep stocks aloft Wednesday, as March retail sales fell short of expectations and investors grew apprehensive about weak consumer spending. A profit warning from motorcycle maker Harley-Davidson also weighed on the market.

Major Market Indices

“We’re seeing pretty heavy selling across the board from hedge funds and mutual funds,” said Greg Palmer, head of equity trading at Pacific Crest Securities.

The Dow Jones industrial average was down 104.04 points, or 1 percent, at the close, while the broader Standard & Poor’s 500-stock index was off 13.97 points, or 1.2 percent. The Nasdaq composite index fell 31.03 points, or 1.6 percent, to its lowest close since October.

Investors shrugged off the steep drop in oil futures to focus on other concerns, including glum corporate outlooks and anxiety about first-quarter results. Wall Street was also digesting the minutes of last month’s Federal Reserve meeting, trying to decide whether inflation would cause policy makers to become more aggressive with interest rate hikes.

Hints of a drop-off in consumer spending, exacerbated by Harley-Davidson’s disappointing profit outlook, added to the concern on Wall Street.

“I would’ve expected the market to act a little bit better based on what crude is doing,” said Todd Clark, head of listed equity trading at Wells Fargo Securities. “But with the retail numbers coming in lighter than expected, we’re starting to have evidence that higher gas and fuel prices are starting to crimp the consumer, and I think the fear is that that won’t change any time soon.”

Greg Palmer said there was some caution on trading desks about upcoming earnings reports: “Whether companies make the number or not isn’t the big issue, the issue is — what’s guidance and what’s the second half? The big question is whether there’s enough in the second half to justify valuations,” Palmer said.

Crude futures sagged after the International Energy Agency forecast slower growth in oil demand this year and the U.S. Department of Energy reported a larger-than-expected build in fuel supplies. Light crude for May delivery fell $1.64 to settle at $50.22 per barrel on the New York Mercantile Exchange. Analysts said the lack of a positive reaction in stocks suggests investors are skeptical about whether the declines will stick.

“I think the fact that the price of oil has come down into the low $50s is lovely, but I don’t think we as investors have any confidence that can necessarily last,” said Linda Duessel, market strategist at Federated Investors in Pittsburgh. “We’re just floundering around with some news in a very tight range.”

In economic news, retail sales rose by a modest 0.3 percent in March, according to the Commerce Department, the weakest showing since January, as the potential for an early Easter shopping rush was trumped by cold weather and higher fuel costs. The increase was significantly below market expectations for a 0.8 percent surge in sales.

Morgan Stanley’s share price fell $1.35 at $53.13 after the resignation of two top investment bankers, the latest development in a swelling controversy over its lackluster performance under chief executive Philip Purcell. Joseph Perella, a star of investment banking for more than two decades, will leave his job as head of Morgan Stanley’s investment banking operations; Tarek “Terry” Abdel-Meguid, Perella’s top deputy, also left the company.

Shares of McDonald’s rose 32 cents to $31.22 after saying it expects first-quarter profits to come in above Wall Street estimates thanks to customer initiatives and a boost from the early Easter holiday. The fast food leader said it expects earnings of 56 cents per share, well above the average analysts estimate for profits of 42 cents per share, according to Thomson Financial.

Harley-Davidson Inc.’s shares price fell 16.7 percent, or $9.84, to $48.93, after the motorcycle manufacturer reported earnings that beat estimates by a penny a share, but cut its shipment and profit forecasts for the year due to weaker sales.

Wal-Mart Stores Inc., the world’s largest retailer, saw its stock price fall 12 cents to $48.57 after Prudential Equity Group upgraded its rating to “neutral” from “underweight.” Analyst Wayne Hood wrote in a research note that declines in Wal-Mart’s stock price better reflect “the company’s fundamental growth prospects and ongoing challenges.”

Overseas, Japan’s Nikkei stock average shed 0.3 percent. In Europe, France’s CAC-40 added 0.5 percent, Britain’s FTSE 100 rose 0.3 percent and Germany’s DAX index rose 0.8 percent.

Reuters and the Associated Press contributed to this report.


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