Investor nervousness puts stocks in tailspin

NEW YORK » Stocks plunged yesterday as investors, nervous about upcoming earnings reports, cringed at troubling forecasts from retailers Home Depot and Sears and at soaring oil prices. The Dow Jones industrial average fell 148 points.

The market seemed to be following the pattern of previous earnings seasons, turning lower as second-quarter reports had a rocky start. Home Depot Inc., Sears Holdings Corp. and homebuilder D.R. Horton Inc. offered dreary outlooks that suggested the sluggish housing market may dampen consumer spending.

The outlooks followed Monday's news that aluminum producer Alcoa Inc.'s second-quarter sales missed estimates and that printer manufacturer Lexmark International Inc. slashed its second-quarter earnings forecast.

"People are a little bit skittish about the health of the consumer," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

As the U.S. dollar tumbled and investors fled to the relative safety of Treasury bonds, the stock market dropped further after oil prices briefly spiked above $73 a barrel, raising concerns about Americans' energy bills.

Wall Street -- which often trades erratically amid profit warnings before the quarterly earnings flood -- also weakened due to ratings agency Standard & Poor's, which said it may lower the credit rating of more than $12 billion in bonds backed by risky home loans. Such loans are sold by some of the nation's largest banks.

The Dow fell 148.27, or 1.09 percent, to 13,501.70, near its low of the session.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 21.73, or 1.42 percent, to 1,510.12, while the Nasdaq composite index was off 30.86, or 1.16 percent, at 2,639.16.

The Russell 2000 index of smaller companies fell 15.76, or 1.85 percent, to 837.48.

Declining issues outnumbered advancers by nearly 3 to 1 on the New York Stock Exchange, where volume came to 1.46 billion shares, compared to 1.33 billion shares Monday.

Bond prices soared, pushing down the 10-year Treasury note's yield to 5.03 percent from 5.16 percent late Monday. The plunge in yields failed to boost stocks, largely because the decrease was caused by worries about the housing market rather than confidence that inflation is easing.

Crude oil futures climbed 62 cents to $72.81 a barrel on the New York Mercantile Exchange, after momentarily surpassing $73 a barrel, their highest point since late August.

The dollar dropped to a new low versus the euro yesterday and a 26-year low against the British pound. Gold prices rose.

The financial and retail sectors saw significant losses on jitters about subprime lending and consumer spending. JPMorgan Chase & Co., American Express Co. and Wal-Mart Stores Inc. were the big losers among the 30 Dow companies.

Sears plunged $17.10, or 10 percent, to $154.31 after issuing its guidance, and D.R. Horton fell 38 cents, or 2 percent, to $19.41.

Home Depot rose 8 cents to $40.31, though, after saying it is launching a tender offer for 250 million shares of its common stock.

Pepsi Bottling Group Inc., one of the world's largest distributors of Pepsi drinks, raised its outlook for full-year earnings, and its stock rose $1.45, or 4.2 percent, to $35.88.