Oil prices hit record,
investors take profits

NEW YORK » Stocks fell for a third straight session yesterday as oil prices soared to record highs after the U.S. embassy in Saudi Arabia said it would be closed for two days because of security threats.

Wall Street retreated after crude prices jumped $1.63 to settle at $63.94 a barrel on the New York Mercantile Exchange following the U.S. embassy's warning that there was a "threat against U.S. government buildings in the kingdom." It was the second alert from the embassy in two weeks.

Meanwhile, gasoline futures also hit a record high of $1.86 per gallon on the NYMEX, adding to the market's gloom with heightened fears of a slowdown in consumer spending.

"Two thing are primarily at work: Oil prices are higher than people would like and we're seeing a little profit taking," said Joseph Lisanti, editor of Standard & Poor's weekly newsletter, The Outlook. "We had a 3.6 percent rise in the S&P 500 in July. It was the best July since 1997, better than two-thirds of all Julys since 1928."

Before oil surged, acquisition news catapulted stocks in the opening minutes of trading. E-Trade Financial Corp. and Quest Diagnostics Inc. said they are buying rivals in deals worth more than $1.6 billion combined, and a British newspaper reported that Cisco Systems Inc. may bid for cell-phone maker Nokia Corp.

Investors were also worried about today's meeting of Federal Reserve policy makers, who are expected to raise the short-term federal funds rate by a quarter percentage point to 3.5 percent -- the 10th hike since last summer.

The Dow Jones industrial average fell 21.10, or 0.2 percent, to 10,536.93. The Dow has lost 160.66, or 1.5 percent, since Thursday.

Broader stock indicators also declined. The Standard & Poor's 500 index slid 3.29, or 0.27 percent, to 1,223.13, and the Nasdaq composite index dropped 13.52, or 0.62 percent, to 2,164.39.

Bonds fell, with the yield on the 10-year Treasury note at 4.42 percent, up from 4.39 percent Friday, the highest level since April. The U.S. dollar was flat against the euro, as gold prices moved slightly lower.

Wall Street will be watching closely today for changes to the Fed's policy statement indicating it will step up its tightening regime. A policy change is unlikely, but analysts are split between those who feel the Fed's rate hikes have been too aggressive and those who think the central bank isn't doing enough to stave off inflation.