NEW YORK – Stocks fell sharply Thursday, knocking the blue-chip Dow below the psychologically key 10,000 level, as the price of crude oil spiked again, climbing back well above $44 a barrel.
The Dow Jones industrial average (search) dropped 163.48 points to 9,963.03. The Standard & Poor's 500 Index (search) lost 17.93 points, or 1.63 percent, to 1,080.70. The technology-laced Nasdaq Composite Index (search) tumbled 33.43 points, or 1.8 percent, to 1,821.63.
The Dow had its second-worst day of the year, falling 1.61 percent, behind the March 11 sell-off of 1.64 percent prompted by the deadly Madrid train bombing. The S&P 500's fall was the steepest decline since Sept. 24, 2003, when it tumbled 1.91 percent.
The drop in stocks accelerated late in the afternoon, with selling triggered by the close of oil futures on the New York Mercantile Exchange (search).
Over the past few weeks, drops in stock prices have corresponded almost directly to rising oil prices, which have climbed on terrorism fears. Thursday's rise, attributed to Russian oil conglomerate Yukos' ongoing troubles with the government there, prompted heavy selling in the last hour of trading.
Crude oil for September delivery jumped to a record high of $44.50 a barrel, the highest level in the 21 years of U.S. oil futures trading, before settling at $44.41, up $1.58.
"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."
Friday's release of U.S. employment data for July could take some of the focus off of oil. Economists polled by Reuters expect nonfarm payrolls — a key measure of the economy's strength — to rise by 228,000 jobs after June's modest gain of 112,000.
Early Thursday, the Labor Department (search) said the number of people filing for initial U.S. jobless aid fell to 336,000 in the week ended July 31 as the pace of layoffs slowed and the job market brightened.
"Everything depends on the jobs report tomorrow. With crude oil prices being above $43 a barrel, it will be hard to sustain a rally in the stock market," said Kenneth Hughes, senior market strategist with Lind-Waldock & Co., a division of Refco LLC.
The Labor Department (search) 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.
Retail sales figures, another key barometer of economic health, failed to live up to expectations. 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 (WMT) fell $1.15 to $52.05, while Target (TGT) skidded $1.37 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."
Caterpillar Inc. (CAT) weighed on the Dow as contract talks continued between the world's largest heavy equipment maker and the United Auto Workers. The stock fell $2.08, or 2.9 percent, to $69.62.
Goodyear Tire & Rubber Co. (GT) was 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.
Shares of clothing retailer Gap Inc. (GPS) fell after the company posted sales below expectations and slashed its profit forecast. Its shares dropped $1.59, or 7.4 percent, to $19.79.
Boeing Co. (BA) shares fell slightly after the manufacturer lost a $5.5 billion airplane deal to European rival Airbus. Boeing's stock slipped 5 cents to $50.95.
Generic drug maker Barr Pharmaceuticals Inc. (BRL) saw a dropoff 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, climbed 98 cents to $36.70.
Frontier Oil Corp. (FTO), 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 to $19.35.
Trading was active, with 1.40 billion shares changing hands on the New York Stock Exchange, in line the 1.4 billion daily average for last year. About 1.57 billion shares were traded on Nasdaq, below the 1.69 billion daily average last year.
Decliners outnumbered advancers on the NYSE and Nasdaq by almost 3-to-1.
The Russell 2000 index of smaller companies was down 10.31, or 1.9 percent, at 532.36.
Overseas, Japan's Nikkei stock average rose 0.5 percent. In afternoon trading, 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.
Reuters and the Associated Press contributed to this report.