NEW YORK – Stocks tumbled Wednesday, wiping out earlier gains made on the back of a stronger-than-expected housing report, as crude oil prices sprinted to a fresh all-time high, raising fears about consumer spending.
The Dow Jones industrial average (search) slid 84.71 points, or 0.81 percent, to end at 10,434.87. The Standard & Poor's 500 index (search) dropped 8.00 points, or 0.66 percent, to finish at 1,209.59. The technology-laced Nasdaq Composite Index (search) shed 8.34 points, or 0.39 percent, to close at 2,128.91.
Once again, the market's economic worries were aggravated by another rise in crude oil futures, which stubbornly remain at near-record levels amid growing evidence that consumers are cutting back on other spending to pay for higher gasoline.
"Oil remains one of the biggest themes weighing on the stock markets," said Bill Strazzullo, chief market strategist at State Street Global Markets in Boston. "It puts a cap in any stock-index appreciation. The concern is that companies won't be able to keep avoiding price increases if oil continues this high for an extended period of time."
U.S. crude oil futures for October delivery rose $1.61 to settle at a record $67.32 a barrel on the New York Mercantile Exchange (search). Earlier, it hit $67.40 -- the highest price since NYMEX started trading crude oil futures in 1983.
The price jump followed government data showing U.S. gasoline supplies fell more than expected last week.
Energy shares got another boost after Morgan Stanley lifted its 2005 earnings estimates on five major energy companies. ConocoPhillips (COP) rose 0.9 percent, or 54 cents, to $63.2, and Sunoco Inc. (SUN) climbed 2.4 percent, or $1.47, to $63.85, both on the NYSE.
When oil hit $67 a barrel in afternoon trading, the major stock indexes gave up their gains.
The market's earlier momentum grew out of the Commerce Department's (search) latest report on new home sales, which rose to an annualized 1.41 million units, better than the 1.328 million home sales expected. But the government also reported a sharp decline in orders for big-ticket manufactured goods — leading investors to wonder whether an economic slowdown was imminent.
"In all you're seeing sort of a mixed reaction out there," said Brian Williamson, an equity trader at The Boston Company Asset Management. "The oil data was good because of the distillates, but you're still seeing oil prices higher because of demand. And we're seeing a lot of volatility across the board."
Investors started the session with the Commerce Department's report that durable goods — items designed to last at least three years — fell 4.9 percent in July, a sharp drop from the 1.9 percent climb in June and far steeper than the 1.5 percent drop economists had expected.
However, the home sales report helped home builder stocks rebound from the previous session's losses. Toll Brothers Inc. (TOL) gained $2.07 to $50, KB Home jumped $1.24 to $72.20 and Lennar Corp. rose $1.17 to $60.10. Yet even the housing report carried a caveat — while sales are up, the average price of a new home fell.
"Although there was some encouragement by new homes sales rising, prices declined. That suggests we are possibly getting a decline in prices, and that's not good for consumer spending," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, noting that many consumers had refinanced their homes in order to continue spending at current levels. "Combined with the pinch from oil prices, this is not good for the market."
After the closing bell, General Motors Corp. (GM) and Ford Motor Co. (F) gave up their regular session gains and fell after Moody's Investors Service cut their debt ratings to "junk" status. Moody's also cut its rating on the debt of GM's finance arm, General Motors Acceptance Corp., to "junk."
Moody's was the last of the three major rating services to cut GM's debt to "junk" status. GM shares fell nearly 1 percent, or 27 cents,to $34 on the Inet electronic brokerage network from an NYSE close at $34.27. Ford's stock slipped to $9.82 on Inet, down from its close at $9.92 on the NYSE.
During regular trading, shares of GM, the world's largest automaker, rose 2.2 percent after a Wall Street Journal article reported that the United Auto Workers union said it is considering helping the company cut costs. Ford's stock gained 1.2 percent in the regular session.
On Nasdaq, Google Inc. (GOOG) rose 1.1 percent, or $2.99, to $282.57 after the largest Web search engine company said it would introduce its own instant messaging system.
Poultry producer Pilgrim's Pride Corp. (PPC) eaffirmed its earnings outlook after rival Sanderson Farms Inc. posted a 29 percent drop in profits on Tuesday. Pilgrim's Pride rose 11 cents to $31.21 while Sanderson Farms gained 63 cents to $36.40 after falling 7.6 percent Tuesday.
Trading was active on the New York Stock Exchange, where decliners beat advancers by a ratio of about 5 to 4, with about 1.45 billion shares changing hands, close to the 1.46 billion daily average for last year.
On Nasdaq, decliners also outnumbered advancers by a ratio of about 5 to 4, with about 1.77 billion shares changing hands, below the 1.81 billion daily average last year.
The Russell 2000 index of smaller companies fell 0.46, or 0.07 percent, to 655.01.
Overseas, Japan's Nikkei stock average rose 0.24 percent. In Europe, Britain's FTSE 100 closed down 0.47 percent, France's CAC-40 fell 0.27 percent for the session, Germany's DAX index lost 0.04 percent.
Reuters and the Associated Press contributed to this report.