Richard Drew  /  AP
Specialist John Haugen, second from right, directs trading on the floor of the New York Stock Exchange Thursday. Stock prices fell sharply in afternoon trading as oil hit a new record high of $60.
updated 6/24/2005 8:13:38 AM ET 2005-06-24T12:13:38

Wall Street was battered Thursday, with the Dow Jones industrial average dropping 166 points, as oil prices hit a new all-time high of $60 per barrel , prompting a sell-off in the hard-hit transportation sector that spread to the rest of the stock market.

“It’s all about oil, oil, oil today,” said Peter Cardillo, chief market strategist at New York retail brokerage S.W. Bach.

“Sixty-dollar oil really has the market spooked, and the question now is will oil stay at these levels, move higher or reverse?” Cardillo said. “The fear is that sustained high oil prices will rekindle energy-related inflation and mean the Federal Reserve may need to raise interest rates aggressively."

After a sharp afternoon sell-off, the Dow Jones industrial average finished down 1.6 percent, sinking to its lowest close since May 17. It was the Dow’s worst one-day drop since April 15.

The broader Standard & Poor’s 500 and Nasdaq composite index each fell about 1 percent.

Shares of Dow industrial companies that are bellwethers for the U.S. economy fell because of fear about the impact of high energy prices. Shares of heavy equipment-maker Caterpillar fell 2.1 percent to $98.47 and diversified manufacturer 3M slid 2.6 percent to $75.87.

Stocks began their descent early Thursday after FedEx Corp. missed earnings forecasts and raised new concerns about oil’s impact on corporate profits. Oil prices crept higher through the day, finally breaking the $60-per-barrel barrier. While purely psychological, that breach was enough to send stocks tumbling.

Light, sweet crude for August delivery ended at $59.42 a barrel, a gain of $1.33. It was a record close on the New York Mercantile Exchange, where oil futures have traded since 1983.

“We always wondered what $60-a-barrel oil would cost us, and now we know,” said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. “On top of that, you’ve got news from FedEx, a transportation company, saying, ‘Yeah, oil is hurting us.’ That’s got the market shaken up a bit.”

Wall Street also was disappointed with comments by Federal Reserve Chairman Alan Greenspan , speaking before the Senate Finance Committee. Greenspan said there is “no credible evidence” U.S. manufacturing or employment would be boosted if China were to revalue its currency — a disappointment to many hoping for such a move.

Good unemployment news did little to mitigate the market’s losses. First-time jobless claims fell to 314,000 last week, the Labor Department reported. That was less than the 330,000 economists expected and down from 334,000 the previous week.

Major Market Indices

In other economic news, existing-home sales fell slightly in May to an annual pace of 7.13 million, slightly off the 7.18 million pace recorded in April, according to the National Association of Realtors.

The surge in oil prices has kept the market from building on last week’s gains and deepened investors’ concerns over whether the May-June rally would be curtailed. Some investors also kept to the sidelines ahead of the Fed’s decision on interest rates next Thursday and the usual end-of-quarter volatility expected next week.

FedEx said profits rose 9 percent in the latest quarter, but rising jet fuel costs and the expense of adding a new round-the-world flight route led the shipping company to miss Wall Street’s profit expectations by 2 cents per share. Shares of FedEx tumbled 8.3 percent to $80.77.

Other transportation stocks fared poorly as well, with rival shipper UPS Inc. falling 1.9 percent to $68.91 and trucking company Yellow Roadway Corp. down 3 percent at $48.50.

Del Monte Foods Co. reported a 66 percent drop in quarterly profits, blaming high raw material and transportation costs — again, with fuel prices partially to blame — for the fall. The company missed Wall Street’s estimates by 22 cents per share. Del Monte’s shares fell 4.5 percent to $10.36.

General Electric Co. skidded 2.4 percent to $34.66 after the Dow component announced a reorganization that would consolidate its 11 business divisions into six groups, saving up to $300 million. The conglomerate also reaffirmed its second quarter and full year profit estimates, and promised double-digit profit growth in 2006 and beyond.

Overseas, Japan’s Nikkei average rose 0.3 percent. In Europe, Britain’s FTSE 100 was up 0.3 percent, Germany’s DAX index gained 0.2 percent and France’s CAC-40 climbed 0.3 percent.

The Associated Press and Reuters contributed to this report.

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