Stocks fell Wednesday as oil prices rose more than $1.60 a barrel after data showed an unexpected drop in crude stockpiles last week. A strong report on manufacturing orders kept the losses in check, however.

The Dow Jones industrial average (search) was down 36.35 points, or 0.35 percent, at 10,467.33. The Standard & Poor's 500 Index (search) was down 3.46 points, or 0.29 percent, at 1,190.61. The technology-laced Nasdaq Composite Index (search) was down 12.78 points, or 0.62 percent, at 2,048.84.

Crude futures rose sharply after the government reported a 1.6 million barrel drop in its oil inventories. The news created concerns about supply as the summer driving season begins. After rising as high as $51.60 a barrel during the session, crude futures settled at $50.98 a barrel, up $1.31, on the New York Mercantile Exchange (search) after the U.S. government said oil inventories fell last week.

"Oil is a concern, but the economy still appears to be in very good shape," said Brian Belski, market strategist at Piper Jaffray. "In stocks, what we're seeing is a fairly normal respite after last week's rally. I still think we're ready for a surprising summer rally ahead."

Higher oil prices weigh on the stock market because rising energy costs tend to depress corporate profits and consumer spending.

Shares of blue-chip, economically-sensitive industrial companies were among the decliners.

Honeywell International Inc. (HON), an aerospace and industrial conglomerate, slipped 1.7 percent to $36.63; 3M Co. (MMM), the maker of products ranging from medical supplies to Post-It notes, dipped 1.5 percent to $77.06 and Caterpillar Inc.(CAT), a heavy-equipment maker, was down 1.5 percent at $92.47.

Tech shares were also off, with investors taking profits after the Nasdaq held its longest rally since December 1999.

"I can't remember the last time Nasdaq had an eight-day rally, so the gravity is kind of falling on the IT guys," said Bryan Piskorowski, market analyst at Wachovia Securities LLC, Richmond, Va.

Cisco Systems (CSCO) slipped 1.9 percent to $19.62, chipmaker Marvell Technology Group Ltd. was down 2.2 percent to $40.59 and Network Appliance (NTAP) was down 4.9 percent to $28.92.

In the health-care sector, shares of Boston Scientific Corp. (BSX) , which makes heart stents, were off 3.7 percent after the company cut its 2005 profit outlook. Its shares slipped $1.14 to close at $29.46 on the NYSE.

Oil company shares rallied, with Exxon Mobil Corp. (XOM), the world's largest publicly traded oil company, up 1.2 percent to $55.68. Rival Chevron Corp. was up 1.3 percent at $53.32.

The American Stock Exchange index of 11 energy companies closed up 1 percent.

In the auto sector, shares of ailing parts supplier Visteon Corp. (VC) surged after customer and former parent company Ford Motor Corp. said it would spend up to $1.15 billion on some of Visteon's unprofitable plants and up to 17,400 employees to help keep that firm afloat.

Visteon shares rose 14.4 percent to close at $7.17 and Ford eased 2 cents to $9.96, both on the NYSE.

The concerns over oil overshadowed a strong report on manufacturing. The Commerce Department (search) said orders for durable goods — big-ticket items designed to last at least three years — rose 1.9 percent in April, far more than the 1.5 percent analysts had expected. The report cheered investors worried about a slowdown in consumer demand.

New home sales edged higher in April, but less than Wall Street had expected. Annualized sales rose to 1.316 million homes, up from 1.313 in March but less than the 1.328 million analysts had forecast. The numbers were still an improvement, but also gave investors hope that the recent surge in housing sales would moderate, rather than nosedive.

Dow component American International Group Inc. (AIG) gained 33 cents to $54.13 despite media reports that New York Attorney General Eliot Spitzer was preparing a civil complaint against the embattled ensurer. The complaint reportedly will allege the company used improper accounting and lied to investors and regulators.

In merger news, Titan Corp. (TTN) added 62 cents to $22.44 on news that it was in talks to be acquired by fellow defense contractor L-3 Communications Inc., with a sale price in the mid-$20 per share range. L-3 lost 63 cents to $69.41.

Energy company Calpine Corp.(CPN) surged 16.2 percent, or 32 cents, to $2.30 after it announced an effort to cut $200 million in costs each year and reduce its debt load by $3 billion at year's end.

About 1.31 billion shares changed hands on the New York Stock Exchange, below the 1.46 billion daily average for last year. About 1.52 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year.

"These holiday weekends have a way of turning into holiday weeks," said Robert Basel, managing director of Citigroup Global Markets, in New York. The coming three-day weekend includes the U.S. Memorial Day holiday, with financial markets closed on Monday.

The number of shares that declined exceeded the number that rose on the NYSE by 11 to 5, and decliners also outpaced advancers on the Nasdaq market by 19 to 10.

The Russell 2000 index of smaller companies was down 6.55, or 1.07 percent, at 606.40.

Overseas, Japan's Nikkei stock average fell 1.07 percent. In Europe, Britain's FTSE 100 was down 0.22 percent, France's CAC-40 slipped 0.04 percent for the session, and Germany's DAX index lost 0.16 percent.

Reuters and the Associated Press contributed to this report.