NEW YORK – Stocks fell Wednesday as crude oil prices surged again, hitting the $65-a-barrel level and reigniting investors' worries about corporate profits and economic growth. The Nasdaq was hurt by a disappointing forecast from Cisco.
The Dow Jones Industrial Average (search) closed down 21.26 points, or 0.20 percent, at 10,594.41. The Standard & Poor's 500 Index (search) ended down 2.25 points, or 0.18 percent, at 1,229.13. The technology-laced Nasdaq Composite Index (search) was down 16.38 points, or 0.75 percent, at 2,157.81.
Investors began the day confident that the U.S. economy will stay strong, absorbing both higher short-term interest rates and rising gasoline prices. But the erosion of stocks' early advance — the Dow Jones industrials had gained more than 100 points, extending a rally from Tuesday — was proof that many investors remained uneasy and inclined to sell when oil climbs higher.
Crude climbed hit an intraday record of $65 a barrel on the New York Mercantile Exchange (search) before easing to a record close of $64.90, up $1.83 for the day.
"The trading session started on an upbeat note with some very solid results, but as oil started to reach new highs, people had to stop and think that maybe at these levels the economy will get hurt," said Larry Peruzzi, senior equity trader at The Boston Company Asset Management in Boston, with $34 billion in assets.
The price of oil "clearly is the headline, and that's probably causing the market malaise," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago.
The increase in oil prices came despite new estimates from the Department of Energy (search) of slower growth in world oil demand. The department's Energy Information Administration said it expects world oil demand to grow by 1.7 million barrels per day this year to 84.2 million barrels per day. That was down from its forecast a month ago of 2.2 million barrels a day growth, largely because of lower projections for China. Still, the agency expects oil prices to average above $56 a barrel through 2006, with spikes to $60 possible.
Cisco Systems Inc. (CSCO) led decliners on the Nasdaq. The No. 1 maker of Internet equipment offered a revenue forecast that was lower than Wall Street had hoped. Shares slipped 7 percent to close at $18.25. Other tech stocks turned lower, too, with Microsoft Corp. (MSFT) dropping 40 cents, or 1.5 percent, to $26.95 and IBM (IBM) dipping $1.48, or nearly 2 percent, to $82.02.
American International Group Inc. (AIG), the insurer rocked by state and federal accounting investigations, rose 82 cents, or 1.3 percent, to $62.24 after the New York-based firm reported strong second-quarter earnings above Wall Street expectations.
Wireless technology company Qualcomm Inc. (QCOM) rose 2.7 percent to $39.81 on Nasdaq after Morgan Stanley raised its rating on the stock to "equal-weight" from "underweight."
Federated Department Stores Inc. (FD), owner of such nameplates as Bloomingdale's and Macy's, said its earnings nearly doubled in the second quarter, and the company sees sales growth picking up in the second half of the year. Federated advanced 93 cents, or 1.3 percent, to $73.69.
The Walt Disney Co. (DIS) dropped 67 cents, or 2.5 percent, to $25.47 when third-quarter results showed a rise in profits but revenue came in below expectations.
Trading was heavy, with 1.67 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average last year. About 1.84 billion shares were traded on Nasdaq, slightly above the 1.81 billion daily average last year.
The number of stocks gaining outnumbered those falling by 1-to-1.3 on the NYSE. On Nasdaq, the declining issues outpaced advancers by 1.2-to-1.
The Russell 2000 index of smaller companies was down 0.32, or 0.05 percent, at 666.30.
Overseas, Japan's Nikkei stock average rose 1.66 percent. Britain's FTSE 100 advanced 0.3 percent, Germany's DAX index rose 1.65 percent and France's CAC-40 increased 0.8 percent.
Reuters and the Associated Press contributed to this report.