Oil's gain, profit outlooks hurt stocks

22/04/2008 - 19:36

By Caroline Valetkevitch

NEW YORK (Reuters) - Stocks dropped more than 1 percent on Tuesday as record oil prices near $120 a barrel fed concerns about how higher energy costs will affect the economy, while disappointing earnings outlooks also dampened the mood.

An index of airline stocks <.XAL> plunged 11.6 percent to a record low and an index of retailers' shares <.RLX> dropped 2.7 percent as crude oil futures rose $2 to an intraday record at $119.90 a barrel. The weak dollar, as well as Nigerian and U.K. supply glitches, drove crude oil prices higher.

Adding to worries about the economic outlook, microchip maker Texas Instruments Inc said its second quarter would be weaker than expected due to an uncertain economic situation and cited customer caution and weak demand for high-end cell phones. Its stock fell 6.6 percent to $28.57.

UnitedHealth Group Inc posted a lower-than-expected first-quarter profit, hurt by weakness in its business serving employers and slashed its full-year earnings forecast. Its shares fell 10.3 percent to $33.92.

"(Oil) has done nothing but go straight up, and obviously it has put a damper on any type of economic recovery. At a certain time, the consumer is just going to have to stop spending," said Angel Mata, managing director of listed equity trading, Stifel Nicolaus Capital Markets, in Baltimore.

The Dow Jones industrial average <.DJI> fell 128.25 points, or 1.00 percent, to 12,696.77, after earlier sliding to a session low at 12,656.56. The Standard & Poor's 500 Index <.SPX> was down 13.39 points, or 0.96 percent, at 1,374.93, after earlier hitting a session low at 1,369.74. The Nasdaq Composite Index <.IXIC> was down 35.38 points, or 1.47 percent, at 2,372.66.

"Until we get some better clarity on oil, I don't see how people can be looking out two, three quarters and say things are going to be OK."

On the Nasdaq, shares of online DVD rental company Netflix Inc fell 23.3 percent to $30.15. The company reported quarterly profits late on Monday that met expectations but disappointed some who were hoping for more. The company's gross profit margin declined.

Dow component McDonald's Corp , posted quarterly profit above expectations, boosted by strong overseas sales. But its stock fell 1.1 percent to $58.03 on the New York Stock

Exchange as the company also said sales fell slightly in March at U.S. restaurants open at least 13 months.

Shares of UAL Corp , parent of United Airlines, fell 35.8 percent to $13.76 after the company reported a quarterly loss that was more than triple a year ago on soaring fuel costs .

AirTran Holdings , parent of AirTran Airways, also reported a loss as did JetBlue Airways . Shares of AirTran were down 19.5 percent at $3.67 on the NYSE and JetBlue declined 5.7 percent to $4.65 on the Nasdaq.

(Additional reporting by Cal Mankowski; Editing by Jan Paschal)

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