NEW YORK – Stocks fell Tuesday as declines in Procter & Gamble (PG) and Best Buy Co. (BBY) rekindled investor fears of a slowdown in consumer spending amid worries that high oil prices and the costly cleanup of Hurricane Katrina will hurt corporate profits.
The Dow Jones industrial average (search) closed down 85.50 points, or 0.80 percent, at 10,597.44. The Standard & Poor's 500 Index (search) fell 9.36 points, or 0.75 percent, to 1,231.20. The technology-laced Nasdaq Composite Index (search) was down 11.08 points, or 0.51 percent, at 2,171.75.
The Dow Jones industrial average had its largest percentage decline since Aug. 24 and the Standard & Poor's 500 index posted its biggest percentage drop since Aug. 15.
Best Buy slumped 11 percent to $44.79, its biggest one-day drop since 2002, after it reported second-quarter earnings that missed Wall Street expectations and a forecast that lagexpectations.
Procter & Gamble was the top decliner in the blue-chip Dow, falling 1.8 percent to $55.54. Analysts at Bear Stearns cut their estimate for Procter & Gamble by 2 cents a share, due in part to the impact of Katrina on its coffee business in the Gulf Coast.
"Companies are beginning to tell the markets they are going to take a hit from both Katrina and higher oil prices," said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, with $800 million in stocks. "Demand for stocks in the short term may slow down."
U.S. gasoline futures ended higher for the first time in three sessions on Tuesday on forecasts that inventories fell last week in the wake of refinery shutdowns caused by Hurricane Katrina in the Gulf Coast.
NYMEX gasoline for October delivery last traded up 2.13 cents at $1.895 a gallon on the New York Mercantile Exchange (search).
"There is so much uncertainty with energy prices, and that is why we are caught in a tight trading range here. Over the next few months you will see how (Hurricane) Katrina will benefit or hurt the market, and there is a wait-and-see attitude among investors," said Brad Pleimann, head of equity position trading at Piper Jaffray.
"It's hard to blame everything on just one company, but Best Buy's earnings, and some disappointing commentary from the company, really got people questioning the impact of oil on consumer spending," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. "And with a lot of economic data and the Federal Reserve meeting next week, you're going to find people hesitant to make any big moves."
The Federal Reserve's Open Market Committee meets Sept. 20, and despite hopes that the Fed would pause in its steady stream of interest rate hikes, decent economic data in the wake of Katrina has led Wall Street to expect another quarter percentage point rate hike.
The retail news overshadowed a slightly better-than-expected report on wholesale inflation. The Labor Department's Producer Price Index (search) rose 0.6 percent in August, less than the 0.7 percent expected. With costly fuel prices removed, "core" PPI was flat for the month.
Along with the PPI report, the Commerce Department (search) reported that the nation's trade deficit fell to $57.9 billion in July from $59.5 billion in June despite higher import prices for crude oil.
Investors had been hoping the Federal Reserve (search) would pause in its campaign of interest-rate hikes to spur recovery after Katrina, but faced with data suggesting moderate inflation, they now see a pause by the Fed as being less likely.
"This is before the hurricane and does not influence what the Fed is going to do, and CPI is more relevant to the markets," said Peter Boockvar, equity strategist at Miller Tabak & Co., referring to the consumer price index due for release Thursday.
Northwest Airlines (NWAC) tumbled 52.6 percent to $1.57 following a New York Times online report that the No. 4 U.S. carrier could file for Chapter 11 bankruptcy as early as Wednesday.
Delta Air Lines (DAL), which has also been the object of speculation that it was close to filing for Chapter 11, dropped 8.2 percent to a 52-week low of 78 cents.
In earnings news, newspaper publisher Knight Ridder Inc. (KRI) warned that its earnings would suffer, partly due to Hurricane Katrina. Knight Ridder fell 5.3 percent to $61.46.
Drug maker Pfizer Inc. (PFE) fell 1.4 percent to $25.98 and was a drag on the S&P. The company said the U.S. Food and Drug Administration failed to approve its osteoporosis drug, Oporia.
Finnish mobile-phone maker Nokia (NOK) raised its quarterly sales and profit forecasts. Shares of Qualcomm Inc. , a wireless technology company, were lifted by the Nokia news and was the top gainer on the Nasdaq. American Depositary Receipts of Nokia climbed 4.6 percent to $16.81 and was among Tuesday's few gainers. Qualcomm rose slightly to $42.85.
Nokia's U.S. rival Motorola Inc. (MOT) rose 2.7 percent to $23.45 and Texas Instruments Inc. , a maker of semiconductors used in mobile phones, was up 2.6 percent at $33.96.
About 1.49 billion shares changed hands on the NYSE, above last year's daily average of 1.46 billion, while on Nasdaq, about 1.74 billion shares traded, below last year's daily average of 1.81 billion.
Declining stocks outnumbered advancing ones by a ratio of about 2-to-1 on both the NYSE and the Nasdaq.
The Russell 2000 index of smaller companies fell 7.69, or 1.13 percent, to 673.13.
Overseas, Japan's Nikkei stock average rose 0.04 percent. In Europe, Britain's FTSE 100 closed down 0.69 percent, France's CAC-40 fell 0.86 percent for the session, and Germany's DAX index tumbled 1.77 percent.
Reuters and the Associated Press contributed to this report.