Wall St drops as oil, data fan inflation fear

20/05/2008 - 16:31

By Ellis Mnyandu

NEW YORK (Reuters) - Stocks fell on Tuesday after a fresh jump in oil prices and producer price data highlighted concerns about inflation and slack earnings from Target Corp and Home Depot Inc suggested weakening consumer spending.

The retailers' quarterly results and outlooks gave further evidence consumers are buckling under falling home values and soaring gasoline prices.

Shares of banks, including JPMorgan Chase & Co , also dropped after an influential analyst warned that the credit crisis was far from over and could extend beyond next year.

U.S. crude oil prices topped $129 a barrel. In another sign of inflationary pressures, the government's Producer Price Index, excluding volatile food and energy costs, rose at the fastest since 1991 in the year through April, hampering efforts by the Federal Reserve to shore up a weak economy.

"This certainly limits the Fed's options as to what it can do to additionally stimulate the economy ... but my guess is that the sell-off is being driven more by oil," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois.

The Dow Jones industrial average <.DJI> fell 175.05 points, or 1.34 percent, to 12,853.11. The Standard & Poor's 500 Index <.SPX> slid 11.64 points, or 0.82 percent, to 1,414.99. The Nasdaq Composite Index <.IXIC> slumped 27.98 points, or 1.11 percent, to 2,488.11.

Technology shares also took a heavy beating. Chip maker Intel Corp was down more than 2 percent a day after data-storage memory chip maker SanDisk Corp warned higher oil prices will hurt consumer spending on technology.

Investors worried the rise in oil would force consumers to forgo spending on discretionary items, squeezing business profits. "It's difficult for the consumer because it puts greater pressure on their budgets and limits their ability to spend on other items," Jankovskis said.

Home Depot, the largest U.S. home improvement chain, fell 4.4 percent to $27.62 after the retailer posted a 66 percent slide in quarterly profit.

Discount retailer Target fell 1 percent to $54.25 after it said its sales growth will likely remain sluggish until the U.S. economic environment improves or stabilizes.

Shares of JPMorgan, the No. 3 U.S. bank, dropped 2.4 percent to $4.88 on the New York Stock Exchange, while shares of Citigroup Inc , the largest U.S. bank, declined 2.1 percent to $22.50.

Meredith Whitney, a U.S. banking analyst at Oppenheimer & Co, said the credit crisis will likely extend well into next year and beyond, resulting in three years of multibillion dollar revenue declines for banks.

Intel dropped to $24.23, putting the stock among the top drags. SanDisk shares tumbled 5.7 percent to $28.30.

Among home builders, shares of Toll Brothers slid 2.8 percent to $23.73. The S&P home builder index was off 2.8 percent, while the retail index <.RLX> dropped 1.8 percent. The S&P financial index shed 1.6 percent.

Economic bellwethers fell on fears higher interest rates will raise borrowing costs for consumers and business.

(Editing by Kenneth Barry)

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