Wall Street rally gets derailed

NEW YORK (CNNMoney.com) -- Credit and subprime mortgage market worries and record-high oil prices sent stocks tumbling Tuesday with the Dow industrials falling nearly 150 points, after Wall Street a rally earlier in the session.

The Dow Jones industrial average (down 146.32 to 13,211.99, Charts) tumbled 146 points, or 1.1 percent, after climbing by as much as 138 points earlier in the session.

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The broader S&P 500 (down 18.64 to 1,455.27, Charts) fell nearly 1.3 percent while the tech-fueled Nasdaq Composite index (down 37.01 to 2,546.27, Charts) lost 1.4 percent.

Stocks began their retreat at about 1:30 p.m. ET Tuesday after mortgage lender American Home Mortgage said it could no longer fund loans and was considering liquidating its assets.

The news sent shares of American Home Mortgage (down $9.43 to $1.04, Charts) plummeting 89 percent and renewed worries on Wall Street about the scope of the recent subprime mortgage mess and fanned credit market worries which helped sink stocks last week.

"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 finished at an all-time, also pressuring stocks. Oil prices finished at an all-time high, climbing $1.38 to $78.21 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 $0.21 to $5.10, Charts, Fortune 500) and embattled automaker General Motors pushed up stocks at the start of the session. GM (down $0.21 to $32.40, 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.

Grocery chain Whole Foods Market (up $0.26 to $37.04, Charts, Fortune 500) reported lower quarterly profits after the closing bell Tuesday, but still topped Wall Street estimates, sending its shares 8 percent higher in after hours trade.

A number of companies including Kraft (Charts) and Time Warner (Charts, Fortune 500) (the parent company of CNNMoney.com) are set to report quarterly earnings before Wednesday's opening bell. Coffee house giant Starbucks (Charts, Fortune 500) and Dow component Walt Disney (Charts, Fortune 500) will report results after the market close.

On the economic front, Wall Street received some relatively encouraging numbers Tuesday, including a tame inflation reading in the June personal spending and income report.

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

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

A number of economic readings are slated for release Wednesday including the Institute for Supply Management's July manufacturing reading, pending home sales for June and the weekly oil inventory report.

In major U.S. corporate news, Dow Jones' Bancroft family members, who own a 32 percent stake in the Wall Street Journal publisher, agreed to back News Corp.'s (down $0.18 to $22.66, Charts, Fortune 500) $5 billion offer, the Journal reported.

Dow Jones (up $5.82 to $57.38, Charts) shares finished over 11 percent higher on the New York Stock Exchange.

Billionaire investor Nelson Peltz said Monday that his restaurant company, Triarc (down $0.07 to $14.31, Charts), would be prepared to offer $37 to $41 a share for struggling rival Wendy's International (up $1.34 to $35.03, Charts).

Shares of British drugmaker GlaxoSmithKline (up $1.65 to $51.08, Charts) gained over 3 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.

Market breadth was negative. Losers beat winners by 4 to 3 on volume of 2.20 billion shares on the New York Stock Exchange. Decliners topped losers by 3 to 2 on volume of 2.77 billion shares on the Nasdaq.

Bonds prices climbed as investors sought shelter in Treasurys, lowering the yield on the 10-year note to 4.74 percent down from 4.8 percent late Monday.

The dollar edged higher versus the euro and was lower against the yen. COMEX gold for December gained $2.70 to $679.30 an ounce.