NEW YORK (CNN/Money) -
Stocks took a beating Thursday, with investors bailing out as crude oil briefly hit a record $60 a barrel, sparking worries that slowing economic growth would dent corporate profits.
Nasdaq and S&P futures pointed to a modestly weaker open Friday, when fair value is taken into account.
The Dow Jones industrial average (down 166.49 to 10,421.44, Charts) fell about 166 points, or nearly 1.6 percent, the biggest one-day percentage drop since mid-April and the third worst session of the year.
The Standard & Poor's 500 (down 13.15 to 1,200.73, Charts) index lost nearly 1.1 percent, suffering its biggest percentage decline since mid-May.
The Nasdaq composite (down 21.37 to 2,070.66, Charts) also fell 1 percent, its biggest one-day percentage decline in about three weeks.
After the close Thursday, chipmaker Micron Technology reported a fiscal third-quarter loss, down from a profit a year ago, and shy of analysts' estimates, as the memory chip maker dealt with a big decline in pricing for its chips. Micron (up $0.23 to $10.83, Research) shares inched lower after the bell.
Friday brings reports on new home sales and durable goods orders.
New home sales are expected to have risen to a 1.320 million unit annual rate in May from a 1.316 million unit annual rate in April. Durable goods orders are expected to have risen 1.5 percent in May after rising 1.9 percent in April.
Stock declines were broad-based, with 28 of 30 Dow issues falling, led by DuPont (down $1.17 to $45.43, Research), 3M (down $2.01 to $75.87, Research), IBM (down $1.82 to $75.41, Research), General Motors (down $0.99 to $33.83, Research) and General Electric (down $0.84 to $34.66, Research).
Weakness in FedEx (down $7.35 to $80.77, Research) added to the jitters, too. The package delivery firm reported weaker-than-expected quarterly earnings and warned that fiscal first-quarter and full-year profits will miss forecasts, due partly to higher fuel costs.
U.S. light crude for August delivery touched a record trading high of $60 a barrel on the New York Mercantile Exchange before pulling back a bit. Crude settled at $59.42, a new closing high, and up $1.33 for the session.
Oil has crept steadily closer to $60 and prices are now up more than 35 percent so far this year -- fueling worries about the long-term impact of higher energy prices on the economy, corporate profits and consumer spending.
Timothy Ghriskey, chief investment officer at Solaris Asset Management, said that $60 a barrel is just a psychological level, on one hand, but it also seemed to trigger a number of mechanical sell programs Thursday. He noted that similar market reactions had followed other big oil milestones, such as $40 a barrel and $50 a barrel.
The impact of these sell programs may ease up in the coming days, Ghriskey said. However, longer term, should oil remain above $60 a barrel, "the investment banks and economists may come out and lower second-half gross domestic product growth forecasts."
Additionally, the stock market likely can't advance beyond current levels until oil comes back down, he added.
Recently, several airlines have raised prices to combat higher fuel costs, and FedEx in part blamed its lackluster guidance on rising fuel.
"FedEx is a big drag today, Merck is down, steel is down, airlines are down, it's all weighing on the transports," said Tim Heekin, head of stock trading at Thomas Weisel Partners.
FedEx rival UPS (down $1.32 to $68.91, Research) tried to distance itself from its competitor by reaffirming that it was on track to meet forecasts. However, the stock slipped anyway.
Those two stocks, along with airlines and railroads, dragged the Dow Jones Transportation average (down 110.94 to 3,457.46, Charts) down 3.1 percent.
On the move
Merck (down $0.73 to $31.25, Research), a Dow 30 company, slipped 2.3 percent on news that it may have known about the risks of its painkiller Vioxx three years before pulling it off shelves.
Steel Technologies (down $3.41 to $17.30, Research) slumped after the steel processing company warned that fiscal third-quarter earnings will miss estimates amid lower shipments. The warning weighed on the broader materials sector.
General Electric said it is reorganizing into six units from the current 11 in CEO Jeff Immelt's first broad shakeup at the company. The Dow component also said it was on track to meet second quarter and full year earnings forecasts.
On the upside, oil stocks jumped along with the price of the commodity, sending the Philadelphia Oil Services Sector (up $1.44 to $147.92, Research) index up 1.1 percent.
Another bright side was the chip sector, which gained ahead of earnings from Micron Technology (up $0.23 to $10.83, Research), due Thursday night after the close.
Broadcom (up $0.84 to $37.27, Research) led the list of chip gainers. The Philadelphia Semiconductor (up 1.57 to 435.25, Charts) index, or the SOX, rose 0.4 percent, well off of its highs of the session.
In other news, Unocal (up $0.16 to $65.02, Research) shares inched higher after China's state-run energy firm CNOOC bid $18.5 billion to buy the energy company, which has accepted a $16.5 billion offer from Chevron (down $0.94 to $57.33, Research).
Market breadth was negative. On the New York Stock Exchange, losers beat winners eleven to five on volume of 1.56 billion shares. On the Nasdaq, decliners topped advancers by more than two to one on volume of 2.05 billion shares.
The morning's economic news was mixed. The number of Americans filing new claims for unemployment fell last week by a bigger-than-expected 20,000 to 314,000, the government reported.
A separate report showed that existing home sales slipped in May.
Investors seemed to take in stride comments from Federal Reserve Chairman Alan Greenspan, who told the Senate Finance Committee that there isn't credible evidence that manufacturing and factory jobs in the U.S. would be helped by China revaluing its currency, as has been posited.
Treasury bonds were modestly lower, recovering from steeper declines in the morning. The decline lifted the yield on the 10-year note to 3.95 percent from 3.94 percent late Wednesday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar gained versus the euro and was little changed versus the yen.
COMEX gold rallied $3.50 to settle at $443.20 an ounce.