Investor pessimism
returns as crude oil
costs skyrocket

NEW YORK >> Another record high for oil prices and a sharp drop in consumer spending rattled investors yesterday, sending stocks lower and halting a five-session winning streak for the Dow industrials. Technology stocks suffered the worst damage.

The market, already fretting over the impact of fuel costs on corporate profits, took another blow as U.S. crude prices jumped above $44 a barrel for the first time.

"It is built into the price of everything," said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee. "As a result, it could raise the cost of products, which is inflationary, and cut into earnings, he said. "It's that basic ... that far-reaching."

The Dow Jones industrial average fell 58.92, or 0.6 percent, to 10,120.24. The decline halted the Dow's longest winning streak since November, an advance of 217 points that lifted the blue-chip measure back above 10,000.

Broad market indicators also dropped. The Nasdaq composite index fell 32.67, or 1.7 percent, to 1,859.42, while the Standard & Poor's 500 index fell 6.93, or 0.6 percent, at 1,099.69.

Stocks have been trading in a narrow range in recent weeks as investors worry about rising interest rates and energy prices. And while the market overcame Monday's jitters over energy prices and new threats of terrorism in the United States, sellers prevailed as the backdrop worsened yesterday.

As oil prices continued their climb, investors feared that consumers and businesses could face even higher fuel costs in coming months.

The contract for September deliver of light crude rose 33 cents to $44.15 on the New York Mercantile Exchange, the third straight closing record. On London's International Petroleum Exchange, September Brent crude rose 67 cents to a new high of $40.64.

Meanwhile, the Commerce Department reported that consumers slashed their spending in June by the largest amount in three years, reinforcing other recent indications that the economic recovery slowed at the end of the second quarter.

The report said consumer spending dropped by a sharp 0.7 percent in June from the previous month. In May, consumers had ratcheted up spending a strong 1 percent. Americans' incomes rose 0.2 percent in June, weaker than the 0.6 percent increase the month before. Both numbers were weaker than analysts had expected.

"We're not getting much in the way of good economic news, so I've been a little bit surprised that the market has been as resilient as it has," said Bernie Schaeffer, chairman of Schaeffer's Investment Research in Cincinnati. He also expressed concern, however, that investors didn't react more enthusiastically to the recent tide of corporate earnings reports.

"We just went through what was supposed to be the salvation of the bull market of 2004, which was supposed to be a month of dazzling earnings reports, and guess what, we got a month of dazzling earns reports and it's had little or no positive impact on the market," Schaeffer said.