Wall Street tumbles as oil prices surge

/ Source: msnbc.com staff and news service reports

Another surge in oil prices weighed heavily on the U.S. stock market Thursday. The Dow Jones industrial average suffered its largest one-day drop of the year, closing below the emotionally-key 10,000 level despite some positive news on the labor market.

A disappointing retail sales report also pressured stocks, adding to a mood of caution ahead of Friday morning's release of the closely watched July employment report.

Investors looked past Thursday's Labor Department report of a drop in weekly first-time jobless claims, waiting to see what clues Friday's jobs report would have about economic growth. Last month’s report fell markedly short of expectations.

“We’ve had some good economic numbers, but with the high price of oil and the terror alert, there’s a lot of pressure on the market on a short-term basis,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “These oil prices will eat away at consumer confidence, consumer spending and start to affect business decision-making.”

A barrel of light crude closed at a record-high of $44.41 Thursday, up $1.58. Drops in stock prices in recent weeks have corresponded almost directly to rising oil prices, which have climbed on terrorism fears. Thursday’s oil price rise was widely attributed to Russian oil conglomerate Yukos’ ongoing troubles with the Russian government.

Investors reacted strongly to the oil hike, selling off stocks rapidly as the afternoon progressed.

At the close, the Dow industrial average was down 163.48 points, or 1.6 percent, at 9,963.03, having slipped below the 10,000 mark earlier in the day. The broader Standard & Poor’s 500-stock index fell 17.93 points, or 1.6 percent, to 1,080.70, while the tech-rich Nasdaq composite index saw a loss of 33.43 points, or 1.8 percent, and finished at 1,821.63.

It was the lowest close for the Nasdaq Composite since Sept. 30, and the lowest for the S&P 500 index since Dec. 17.

Retail sales figures, a barometer of consumer spending, were also under close scrutiny. Major retailers announced mixed sales data Thursday, with many apparel merchants issuing disappointing numbers.

Companies including Wal-Mart Stores Inc. and Target Corp. had stronger sales in July that were mostly in line with expectations, but investors were hoping for better news. Wal-Mart fell $1.15 cents to $52.03, while Target skidded 1.37 cents to $41.76.

The concern on Wall Street is that the retail numbers reflect consumer distress over rising prices, particularly oil. Higher oil prices could cause inflation as retailers pass higher shipping costs to customers, and curtail consumer spending as Americans pay more for gas.

“A lot of good earnings numbers have come out, but the overriding economics of oil has dwarfed any of the individual company results,” said Brian Bruce, director of global investments for PanAgora Asset Management Inc. “I think we need continued positive economic news and a string of small gains. That might get out of this cycle where oil goes up, stocks go down.”

Rising oil prices, caused by Russia’s oil giant Yukos’ tax problems, overshadowed the latest economic data. The Labor Department reported a drop of 11,000 first-time unemployment filings, and said the number of people who continue to receive benefits fell by 35,000 to 2.91 million — down from 3.62 million a year ago.

Goodyear Tire & Rubber Co. finished up 5 cents at $10.90 after it swung to a profit in the second quarter on record tire sales. The company posted earnings of 14 cents per share, 6 cents better than analysts’ estimates.

Generic drug maker Barr Pharmaceuticals Inc. saw a drop off in second-quarter earnings because of heavy litigation charges. Without the one-time expenses, Barr edged past Wall Street expectations by 2 cents per share. Barr, which gave an improved 2005 outlook, surged 98 cents to $36.70.

Frontier Oil Corp., like many energy companies, showed strong earnings thanks to this year’s rise in oil prices. Frontier beat expectations by 25 cents per share, but fell $1.19 cents to $19.35.

Declining issues outnumbered advancers by more than 9 to 4 on the New York Stock Exchange, where volume came to 1.03 billion shares, compared with 1.05 billion at the same point Wednesday.

Overseas, Japan’s Nikkei stock average rose 0.5 percent. In Europe, Britain’s FTSE 100 closed up 0.1 percent, France’s CAC-40 gained 0.4 percent for the session and Germany’s DAX index climbed 0.1 percent.