Stocks fall after more concerns about oil prices, disappointing manufacturing data NEW YORK (AP) -- Wall Street began the third quarter Tuesday with another sharp decline as rising oil prices and weak economic data made it clear the country can expect no respite anytime soon from its morass of financial problems. The Dow Jones industrials skidded nearly 150 points, and Treasury prices rose in a flight to the safety of government debt.
The first session of the second half of 2008 brought more discouraging news for investors: Oil rose again toward record high levels, a report showed that U.S. manufacturers are still under duress and Ford Motor Co. said its June sales tumbled. This all raised the market's fears that the economy -- still reeling from soaring commodities prices and the lingering credit crisis -- is not any closer to turning around.
The biggest issue facing shareholders remains the escalating price of oil. A barrel of light, sweet crude held above $142 after hitting a record high of $143.67 on the New York Mercantile Exchange.
The toll higher energy prices is taking on the economy was evident in a report Tuesday on U.S. manufacturing. The Institute of Supply Management said manufacturing unexpectedly grew in June, but a closer look at the report showed that the prices companies paid for fuel and materials continued to grow as demand shrunk. The overall gain came on higher exports, and, taken as a whole, the ISM report turned out to be a disappointment.
Tuesday's events -- especially the manufacturing and auto sales data for June, the last month of the second quarter -- were an unnerving harbinger of what's to come when companies start issuing earnings and outlooks in the coming weeks. It is widely expected that those results will reflect the impact of higher oil, and the fact that crude continues to climb is pointing to even more economic troubles in the coming months.
During the spring, the market had hopes for a better second half. But oil and the continuing stream of credit-related problems at financial companies erased those hopes during June, a month that wiped out more than 10 percent of the Dow's value.
"It feels like we continue to stretch and stretch until something snaps, and that will continue to happen until we do something about oil," said Jack Ablin, chief investment officer at Harris Private Bank. "This is a test of wills between oil and stocks, and hopefully we're not on some kind of collision course."
The Dow fell 143.21, or 1.26 percent, to 11,206.80. The major indexes ended the first half of 2008 with double digit declines.
The Standard & Poor's 500 index gave up 15.12, or 1.18 percent, to 1,264.88; and the Nasdaq composite index dropped 27.94, or 1.31 percent, to 2,263.01.
The drop in the U.S. followed a steep decline in European markets. Britain's FTSE 100 fell 2.60 percent, Germany's DAX index fell 1.60 percent, and France's CAC-40 fell 2.11 percent.
Bonds rose as investors pulled money out of stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.91 percent from 3.98 percent late Monday.
Investors were also disappointed by another drop in construction spending due to the continuing slump in housing. The Commerce Department said construction spending fell 0.4 percent, slightly less than economists' forecasts.
Mike Malone, a trading analyst, Cowen & Co., said the steep drop shows how fearful the market is about any kind of bad news. He said the drop in major indexes shows a lack of buyers in the market, and swings made even more pronounced because of light volume in the market.
"We just weren't able to hold on to gains," Malone said. "There was some hope that the financials might lead us higher on the day, but they weren't able to hold the line and brought everyone down with it."
Investors might get some more direction in upcoming economic reports like Thursday's June employment numbers.
Ford fell 31 cents, or 6 percent, to $4.50 after the automaker reported that sales declined by a weaker-than-expected 28 percent in June. General Motors Corp. fell 74 cents, or 6.5 percent, to $10.87 ahead of the release of its sales report.
CIT Group Inc. rose 97 cents, or 14 percent, to $7.79 after the financial company announced the sale of its home lending business to Lone Star Funds for $1.5 billion. Lone Star will also assume $4.4 billion of debt and other liabilities.
CIT also agreed to sell other assets to raise a total $1.8 billion in fresh capital. Global financial companies have been raising money to combat more than $300 billion of losses from mortgage-backed securities and other risky investments.
Also in the financial sector, Lehman Brothers Holdings Inc. shares rose 39 cents to $20.23 after a steep decline on Monday. The nation's fourth-largest investment bank had been the target of rumors that it might sell itself to Britain's Barclays PLC at a discount price.
Declining issues led advancers by a 3 to 1 margin on the New York Stock Exchange, where volume came to a light 818.2 million shares.
The Russell 2000 index of smaller companies fell 10.77, or 1.56 percent, to 678.90.
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