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Rising oil staggers stocks
Market under pressure as crude hits record, techs weaken; investors gear up for Fed decision Tues.
August 8, 2005: 5:37 PM EDT
By Alexandra Twin, CNN/Money staff writer

NEW YORK (CNN/Money) - Stocks slumped Monday as record high oil prices unnerved investors, one session before an expected interest-rate hike.

As of 5:30 p.m. ET, Nasdaq and S&P futures pointed to a mixed open for stocks, when fair value is taken into account.

The Nasdaq composite (down 13.52 to 2,164.39, Charts) lost 0.6 percent.

The Dow Jones industrial average (down 21.10 to 10,536.93, Charts) lost 0.2 percent and the Standard & Poor's 500 (down 3.29 to 1,223.13, Charts) index lost around 0.3 percent

All three had seen gains in the first 30 minutes of trade -- amid talk of Cisco potentially buying Nokia -- but pulled back amid a jump in oil prices.

U.S. light crude oil for September delivery closed at a record $63.94 a barrel on the New York Mercantile Exchange after hitting a record trading high of $64 during the session. The latest jump in prices occurred after the U.S. embassy in Saudi Arabia was closed due to security threats.

Treasury prices slipped, boosting the corresponding yields, and the dollar gained versus other major currencies.

The major gauges have gained in five of the last six weeks, and the stocks that led that advance were among the ones hit hardest Monday.

"It's amazing the market is holding up as well as it is, considering that oil prices are at a record," said Jim Melcher, president of Balestra Capital.

Melcher said investors may still be overlooking the reality of surging oil prices and focusing instead on earnings and other positives.

Microsoft (down $0.63 to $27.13, Research) lost 2.3 percent and led the tech decliners.

A number of chips also fell, lowering the Philadelphia Semiconductor (down 5.33 to 465.86, Charts) index,or the SOX, by 1.1 percent.

A slew of homebuilders were hit, sending the Dow Jones Home Construction (down $34.45 to $989.91, Research) index down 3.4 percent.

Stocks slumped Friday as investors digested the stronger-than-expected July jobs report. The strength in the report seemed to revive fears that the Federal Reserve may need to speed up the pace of its interest-rate hiking campaign to cool off an overheating economy.

The central bank's policy makers are meeting Tuesday and are widely expected to boost short-term interest rates by 25 basis points (a quarter-percentage point) for the 10th consecutive time.

"25 points is locked in," said John Davidson, president and CEO at PartnerRe Asset Management. "The statement may have some very subtle changes in the language, but nothing surprising."

As has been the case of late, investors will be particularly attuned to the Fed's statement.

The statement will likely be nearly identical to the statements at the last two meetings in May and June, said Stuart Hoffman, chief economist at PNC Financial Services Group.

"They'll say the economy is doing well, policy remains accommodationist and that pressures on inflation are still elevated," Hoffman added. "Basically, they'll tell the market that it's six weeks later and nothing they've seen changes the fact that they are going to keep raising rates."

On the move

The market had opened with modest gains amid some upbeat merger news, including a report in the British newspaper The Business that said that Cisco Systems (down $0.05 to $19.25, Research) may be interested in buying Nokia (up $0.14 to $16.08, Research). However, the Finnish telecom maker dismissed the report as "pure fabrication."

In other merger news, E*Trade (up $1.24 to $16.10, Research), the online broker, said it would buy rival Harrisdirect for $700 million from Canadian firm BMO Financial Group (down $0.18 to $48.49, Research).

Among other stock movers, Dow component Alcoa (up $0.30 to $28.04, Research) gained 1.1 percent after it received a positive write-up in financial weekly Barron's over the weekend.

Fellow Dow stock McDonald's (up $0.84 to $32.14, Research) jumped 2.7 percent after posting both global and U.S. sales at stores open a year or more that topped analysts' forecasts.

The jump in oil prices also boosted shares of oil services companies, including Exxon Mobil (up $0.76 to $58.85, Research), which gained 1.3 percent.

The Amex Oil (up 18.02 to 977.28, Charts) index gained 1.9 percent.

In earnings news, two auto parts suppliers reported quarterly losses, reflecting the ongoing challenges in the auto sector.

Visteon (up $1.34 to $9.85, Research) reported a steep quarterly loss, after reporting a profit a year earlier, due to charges related to returning unprofitable plants to former parent Ford Motor (up $0.01 to $10.37, Research). However, the company's earnings per share loss was nonetheless smaller than expected, and shares rose.

Delphi (up $0.07 to $5.03, Research) reported a loss versus a year-earlier profit due to production cuts by General Motors (down $0.24 to $34.95, Research), a leading customer. The auto parts supplier also said that it may have to declare bankruptcy if it can't cut wage and benefit costs. Shares ended modestly higher.

Market breadth was negative. On the New York Stock Exchange, losers topped winners five to three on volume of 1.35 billion shares. On the Nasdaq, decliners beat advancers three to two as 1.46 billion shares changed hands.

Treasury prices edged lower, with the yield on the 10-year note rising to 4.42 percent from 4.39 percent late Friday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and was little changed versus the yen.

COMEX gold fell $2.50 to settle at $440.30 an ounce.  Top of page


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