$61 price of oil
spooks investors

NEW YORK » Stocks tumbled yesterday as oil prices climbed to a record on fears of refining shortages and caused investors to look past a report showing strong growth in the service sector of the economy. The Dow Jones industrials dropped more than 101 points.

Oil closed above $61 per barrel for the first time as investors worried that Tropical Storm Cindy would hurt production in the Gulf of Mexico and refinery capacity along the coast. Reports of power outages at two Valero Energy Corp. refineries heightened investors' fears. A barrel of light crude settled at $61.28, up $1.69, on the New York Mercantile Exchange.

A spike in activity in the service sector failed to stem the losses.

"There are a number of cross currents in the market right now that make it difficult to find a direction," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "The services report was a very pleasant surprise, and added to generally positive economic data. But then you have oil, which could slow the economy."

The Dow fell 101.12, or 0.98 percent, to 10,270.68 after rising 68 points Tuesday.

Broader stock indicators also fell. The Standard & Poor's 500 index was down 10.05, or 0.83 percent, at 1,194.94, and the Nasdaq composite index lost 10.10, or 0.49 percent, to 2,068.65.

Bonds gained ground after a strong selloff in the previous session. The yield on the 10-year Treasury note fell to 4.07 percent from 4.10 percent late Tuesday.

Optimism about the U.S. economy pushed the dollar to an 11-month high against the Japanese yen. The greenback lost ground against the euro and other major currencies. Gold prices rose.

Even as the dollar rises, oil prices have continued to climb as well -- confounding investors trying to determine the economy's direction. While the Labor Department's job creation report tomorrow and the first wave of second-quarter earnings next week should clarify matters, the markets will have very little impetus to move higher until then.

Valero Energy dropped $1.46 to $83.50 after the company said the outages would reduce oil refining capacity slightly. Global demand for oil and distillates have threatened to overtake supply, and any reduction in refining capacity is seen as pressure on crude futures.

But despite yesterday's market losses, analysts said bigger problems may lie ahead for the economy.