updated 8/8/2005 8:08:04 AM ET 2005-08-08T12:08:04

Stocks and bonds slid Friday after record oil prices and a surprisingly strong gain in jobs and wages unnerved investors, who feared that a more robust labor market and higher wages could spark inflation and lead to more interest rate hikes.

Major Market Indices

The market’s main indexes fell for the week.

Wall Street extended its losses from Thursday after the Labor Department said workers’ average hourly earnings rose to $16.13 in July, the largest increase for the year.

The financial markets got no help from the price of oil, which climbed to a record on fears the U.S. gasoline supply wouldn’t meet the summer’s demand. A barrel of light crude settled at $62.20, up 93 cents on the New York Mercantile Exchange.

The Dow Jones industrial average finished the day down 52.07 points, or 0.5 percent, compounding an 87-point drop the previous session, while the broader Standard & Poor’s 500-stock index dropped 9.44 points, or 0.8 percent, and the Nasdaq composite index gave up 13.41 points, or 0.6 percent.

The early part of the week saw a continuation of the market’s July rally, with the Nasdaq composite and S&P 500 indexes reaching four-year highs, but higher oil prices and data showing the economy growing at a strong clip ended the advance.

Once it became clear that the earnings season that started in early July was going to end with strong corporate growth, investors began to look ahead gloomily to next week’s Federal Reserve policy meeting.

The Fed’s Open Market Committee, concerned about an overheating economy and inflation, is expected to raise the short-term federal funds rate a quarter percentage point on Tuesday; that would be the 10th rate hike since last June.

The three main indexes ended the week lower for the first time in five weeks. The Dow edged 0.78 percent lower, the S&P drooped 0.63 percent and the Nasdaq dropped 0.32 percent.

Investors have been longing for a sign that the Fed will stop its yearlong streak of interest rate hikes, but an end to the hikes appears less likely after strong data on durable goods, the gross domestic product and Friday’s jobs reports, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

The Labor Department reported the biggest jobs gain in five months, saying employers expanded their payrolls by 207,000 in July. Revised figures released Friday for May and June showed payroll gains in those months were also larger than previously thought.

In company news, Delphi Corp. fell 82 cents to $4.96 after the world’s largest maker of auto parts confirmed it is in restructuring talks with its main unions and its biggest customer, General Motors Corp. The company also disclosed it had begun drawing on its $1.8 billion credit line to its finance its operations. It said it initiated a draw down of $1.5 billion on Wednesday.

Viacom Inc. rose 12 cents to $34.19 after its second-quarter earnings were flat compared with the same period a year ago, when the company still owned the Blockbuster video unit. Excluding that and other discontinued operations, earnings, reported after the close of regular trading Thursday, rose 6 percent, beating analysts estimates by a penny.

Goodyear Tire & Rubber Co. said after the close of trading Thursday its second-quarter earnings doubled, beating analysts’ estimates, as sales reached a record. The company also said it would raise some of its prices as its raw materials costs increase. Its stock price rose $1.04 to $18.49.

Overseas, Japan’s Nikkei stock average fell 1 percent. In Europe, Britain’s FTSE 100 was down 0.02 percent, Germany’s DAX index fell 1 percent and France’s CAC-40 lost 0.8 percent.

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