Stocks retreat into the red

NEW YORK (CNNMoney.com) -- Wall Street could not sustain its early rally, slipping into negative territory Tuesday afternoon on higher oil prices and signs that recent credit market woes were not over.

The Dow Jones industrial average (down 21.46 to 13,336.85, Charts) eased about 0.1 percent with less than an hour remaining in the session, after climbing by as much as 138 points after the market open.

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The broader S&P 500 (down 6.17 to 1,467.74, Charts) fell over 0.2 percent while the tech-fueled Nasdaq Composite index (down 17.61 to 2,565.67, Charts) lost nearly 0.6 percent.

After a bullish start to the session, stocks pared gains as new credit market concerns emerged.

Mortgage lender American Home Mortgage said Tuesday afternoon it was unable to borrow and that it was considering liquidating its assets, marking the latest woe in the credit market.

The news sent shares of American Home Mortgage (down $9.34 to $1.13, Charts) plummeting 89 percent and renewed worries on Wall Street about health of the mortgage and larger credit markets.

"The concern is when will the next shoe drop," said Art Hogan, chief market analyst, Jefferies & Co. "The implication is not this one particular company, but what else is out there."

Investors around the world have been rattled by signs of tougher conditions in credit markets, since tighter credit could raise the cost of borrowing for companies, hurting corporate earnings. This is likely to slow the buyout boom, which has helped prop up stock prices.

Oil prices, which neared its record trading high of $78.40 hit a year ago, also pressured stocks Tuesday. U.S. light crude for September jumped $1.41 to $78.24 a barrel on the New York Mercantile Exchange.

"We're printing up a new high on the price of oil - at some juncture that had to have an effect," said Hogan.

Better-than expected earnings from Sun Microsystems (up $0.27 to $5.16, Charts, Fortune 500) and embattled automaker General Motors pushed up stocks at the start. GM (up $0.24 to $32.85, Charts, Fortune 500) posted its first profitable quarter in over two years, while Sun, which makes computer servers, reported better-than expected earnings after the closing bell Monday.

Wall Street also received some relatively encouraging numbers from the economic front Tuesday.

In the June personal spending and income report, the so-called core PCE deflator, a favored inflation gauge of the Federal Reserve, came in lower than expected and within the central bank's comfort range.

And consumer confidence climbed to its highest level in nearly six years, the Conference Board reported Tuesday, handily beating forecasts.

Two troubling areas, however, were a surprise decline in construction spending in June, and a report that revealed Midwest business activity grew at a slower-expected pace in July.

In major U.S. corporate news, Dow Jones' Bancroft family members, which own a 32 percent stake in the Wall Street Journal publisher, agreed to back News Corp.'s (down $0.04 to $22.80, Charts, Fortune 500) $5 billion offer, the Journal reported.

Dow Jones (up $5.80 to $57.36, Charts) shares climbed over 11 percent in afternoon trade on the New York Stock Exchange.

Billionaire investor Nelson Peltz said Monday that his restaurant company, Triarc (down $0.04 to $14.34, Charts), would be prepared to offer $37 to $41 a share for struggling rival Wendy's International (up $1.53 to $35.22, Charts).

Shares of British drugmaker GlaxoSmithKline (up $1.76 to $51.19, Charts) gained nearly 4 percent after a Food and Drug Administration advisory panel recommended that Glaxo's best-selling diabetes drug, Avandia, remain on the market despite an analysis showing links to increased risk of heart attack.

Treasury prices rose, lowering the yield on the 10-year note to 4.78 percent down from 4.8 percent late Monday. The dollar edged lower versus the euro and was higher against the yen.

COMEX gold for December gained $2.70 to $679.30 an ounce.

Market breadth was mixed. Winners beat losers by nearly 5 to 3 on volume of 1.47 billion shares on the New York Stock Exchange. Decliners edged out losers on volume of 2.03 billion shares on the Nasdaq.