U.S. fell sharply Wednesday as crude oil prices rose above $56 a barrel to set a new all-time record and as General Motors (GM) slashed its profit forecast by as much as 80 percent.

The Dow Jones industrial average (search) was down 112.03 points, or 1.04 percent, to end at 10,633.07. The Standard & Poor's 500 Index (search) was down 9.68 points, or 0.81 percent, to finish at 1,188.07. The Nasdaq Composite Index (search) was down 19.23 points, or 0.94 percent, to close at 2,015.75.

The Nasdaq closed at its lowest level in seven weeks, while the Dow and the S&P closed at their lowest level in three weeks.

"We started the day with the very negative earnings comments from General Motors and then the jump in oil to another high," said Al Goldman, chief market strategist at A.G. Edwards. "These factors came into a market where investors were already quite nervous, so down we went. We've been in a correction mode for six days now, so this just greased the slide."

U.S. crude oil futures ended at a new record price after the government reported a larger-than-expected drop in gasoline supplies last week. Crude for April delivery settled at $56.46 on the New York Mercantile Exchange (search), gaining $1.41, after soaring to an intraday peak of $56.50.

Higher energy prices weigh on the stock market because they can hurt corporate profits and dampen the consumer spending that drives the U.S. economy.

"Inflation is really spooking the market in a way that it hadn't before," said Brian Pears, head equity trader at Victory Capital Management in Cleveland.

Chemical companies, which typically use a significant amount of oil, slid. Dow Chemical Co. (DOW) fell 3.4 percent, or $1.82, to $51.64, while DuPont Co. (DD) dropped 2.6 percent, or $1.40, to $51.73.

Other industrial names got caught up in the sell-off. Boeing Co. (BA) was down 2.9 percent, or $1.71, at $56.77, a day after Prudential analysts said that risks to the aircraft maker were highlighted by Continental Airlines' warning that it could cancel a major Boeing jet order if its unions rejected a pay-cut deal.

GM (GM), the world's largest carmaker, was the biggest drag on the Dow, after it lowered its outlook due to slumping North American auto sales.

GM's stock sank 14 percent, or $4.71, to $29.01, after falling as low as $29, its lowest level since October 1992. Meanwhile, shares of automotive parts company Delphi Corp. (DPH), GM's largest supplier, shed 5.5 percent. or 27 cents, to $4.67. Rival automaker Ford Motor Co. (F) fell 2.6 percent, or 32 cents, to $11.91.

"GM threw the market for a loop at the start, but it's really been this reversal to new contract highs in crude that's got it spooked again," said Todd Clark, head of listed trading at Wells Fargo Securities. "While GM is not helping, the market is completely reacting to the move in crude."

Meanwhile, the U.S. current account deficit was worse than expected, widening to a record $187.9 billion in the fourth quarter and fueling fresh worry about whether the United States can attract the foreign investment necessary to finance the gap. The dollar fell sharply after the report and dragged on the stock market. A weaker greenback can hurt stocks because it can dissuade investors from buying U.S. assets.

U.S. housing starts rose 0.5 percent last month to a 21-year high, defying Wall Street expectations for a fall, as single-family starts jumped to a record, a Commerce Department report showed. But permits for future groundbreaking, an indicator of builder confidence, slid 2.7 percent to a 2.074 million unit pace.

Shares of Qwest Communications International Inc. (Q) fell 2 cents, or 0.5 percent, to $3.84 after the company sweetened its offer for MCI Inc. (MCIP). Rival suitor Verizon Communications Inc. (VZ) fell 34 cents to $35.34. MCI declined 30 cents to $23.73.

Research In Motion Ltd.(RIMM), the Canadian company that makes BlackBerry wireless e-mail devices, jumped $12.25 or 18.3 percent to $79.34 after the company said it would pay $450 million to settle a lawsuit from NTP Inc., a Virginia company which said the devices infringed on in its patents.

Toys R Us Inc. (TOY), the nation's second biggest toy retailer, rose 64 cents or 2.7 percent to $24.73 after The Wall Street Journal reported that the buyout specialist Kohlberg Kravis Roberts & Co. and an investment group led by Cerberus Capital Management LP have each made offers for the whole company.

Trading was active, with 1.65 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 1.98 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year.

Decliners outnumbered advancers on the New York Stock Exchange by 8 to 3 and by about 2 to 1 on Nasdaq.

The Russell 2000 index of smaller companies was off 3.85, or 0.62 percent, at 622.97.

Overseas, Japan's Nikkei stock average rose 0.4 percent. Britain's FTSE 100 fell 1.25 percent, Germany's DAX index fell 1.8 percent, and France's CAC-40 fell 1.4 percent.

Reuters and the Associated Press contributed to this report.