Wall Street gave up a big early advance and the major indexes closed down Tuesday after oil prices closed above $100 for the first time and stoked fears that inflation will stymie an already troubled economy.
Soaring oil prices could bring more problems for consumers, having already made many Americans shy about spending in recent months. Consumer spending, a key driver of U.S. economic growth, has also been shaken by falling home prices and the volatile stock market.
The market was also concerned that rising inflation might make the Federal Reserve reconsider its bias toward lowering interest rates to help the economy. The central bank, which next meets March 18, last month slashed rates by 1.25 percent.
“I think there are still a lot of worries in the market that we have this stagnant growth in the economy and higher prices,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research in Cincinnati.
Investors likely were positioning themselves ahead of a half-dozen economic reports that could give the market further direction. Paramount will be Wednesday’s Labor Department report on consumer prices for January, which is a closely watched gauge for inflation. The Fed will also release minutes from its last meeting.
Meanwhile, new concerns that banks are facing more financial problems this year dragged the sector sharply lower — and reminded investors that the credit crisis appears far from a resolution.
According to preliminary calculations, the Dow Jones industrial average fell 10.99, or 0.09 percent, to 12,337.22 after being up more than 100 points earlier in the session.
Broader indexes also moved lower. The Standard & Poor’s 500 index fell 1.21, or 0.09 percent, to 1,348.78; and the Nasdaq composite fell 15.60, or 0.67, 2,306.20.
But advancing issues were ahead of decliners on the New York Stock Exchange by about 9 to 7, while on the Nasdaq Stock Market, decliners had a modest lead. Volume on the NYSE came to about 1.4 billion shares, which is considered light.
Government bonds dipped as stocks gained. The yield on the 10-year Treasury note, which moves opposite its price, jumped to 3.87 percent from 3.77 percent late Friday.
The dollar was mixed against most major currencies.
Light, sweet crude for March delivery rose $4.51 to settle at a record $100.01 a barrel on the New York Mercantile Exchange after earlier rising to $100.10, a new trading record. It was the first time since Jan. 3 that oil had been above $100.
Other commodities, including gold and soybeans, rose as well. At the pump, gas prices rose further above $3 a gallon.
Beyond inflation, investors also continued to worry about the financial sector. So far, global banks have written down more than $150 billion from bad bets on mortgage-backed securities — and more losses are expected to the first quarter.
British bank Barclays Group PLC revealed credit-related losses totaling $3.13 billion, up from a smaller write-down in November, while Credit Suisse, Switzerland’s second-largest bank, said it has suspended “a handful” of traders in connection with the overvaluation of asset-backed securities by $2.85 billion.
Also, The Wall Street Journal reported that Lehman Brothers Holdings Inc. could see big losses due to its significant investments in commercial real estate loans. Lehman fell $1.35, or 1.3 percent, to $53.42.
“Can these financial stocks get to the bottom of their questions of soundness in asset quality? We have to reach a tipping point here,” said Richard Cripps, chief market strategist for Stifel Nicolaus. “That’s the part that I think has to occur for this market to have a sustained advance.”
There have been some signs that troubled financial institutions are finding ways to regain their footing, however.
Bond insurer Ambac Financial Group Inc. is discussing a plan to raise at least $2 billion in capital to maintain its superior credit rating, the Journal reported, citing people familiar with the matter. The move would mirror a $3 billion cash-raising effort by rival bond insurer MBIA Inc., which said Tuesday that its former chairman and chief executive has returned to the lead the company.
Ambac fell 19 cents to $10.03, though, after a Goldman Sachs Group Inc. analyst cut his price target for the insurer to $7 from $10 and said the company will probably to need to raise about $3.5 billion to maintain its “AAA” rating. MBIA slipped 41 cents to $11.83.
In economic news, the National Association of Home Builders said its index measuring homebuilder confidence inched up in February. Wall Street remains wary about the prospects for the housing market, however.
The Russell 2000 index of smaller companies rose 0.82, or 0.12 percent, to 702.34.
Overseas, Japan’s Nikkei stock average gained 0.90 percent. Britain’s FTSE 100 advanced 0.34 percent, Germany’s DAX index added 0.50 percent, and France’s CAC-40 increased 0.49 percent.