Stocks slide on oil spike

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NEW YORK (CNNMoney.com) -- Stocks slipped Friday afternoon, with investors using record oil and gas prices and a weak consumer sentiment report as a reason to step back a little after pushing the major gauges to multi-month highs in the previous session.

The Dow Jones industrial average (INDU) had lost 0.4% with about 3 hours left in the session. The broader Standard & Poor's 500 (SPX) index had fallen 0.3% and the Nasdaq composite (COMP) had slipped 0.6%.

Stocks rose through most of the week, with the S&P 500 ending Thursday's session at a more than 4-month high. But after such a run, stocks retreated a bit Friday, as record commodity prices revived fears about how inflation will hit an already weakened consumer and U.S. economy. That run up overshadowed any relief about a better-than-expected housing market report.

"We had some decent news this morning on the housing front, and the economic and earnings news all week hasn't been bad," said Ron Kiddoo, chief investment officer at Cozad Asset Management. "But you've got oil up a couple of dollars today and it's also a Friday, so you're seeing a little selling."

Economic news: April new home construction rose to a seasonally adjusted annual rate of 1,032,000, the government said, topping economists' forecasts and rising from March levels, thanks to apartment construction. But the single-family housing start measure, considered to be key, fell to another 17-year low.

Building permits rose to a seasonally adjusted annual rate of 978,000, also topping forecasts and rising from March levels. (Full story).

The University of Michigan's consumer sentiment index for May fell to 59.5 from 62.6 in the previous month, versus forecasts for a drop to 62.

Treasury Secretary Henry Paulson, speaking Friday afternoon, said that he expects to see the pace of U.S. economic growth pick up by the end of the year.

Meanwhile, the United Nations warned that the world economy could see a severe downturn, with growth of just 1.8% expected this year, as a result of the U.S. housing and financial market bust. (Full story).

Company news: General Electric (GE, Fortune 500) said it is looking to get out of the appliance business, confirming reports Thursday that speculated a sale price in the $6 billion range. (Full story).

Yahoo responded late Thursday to activist shareholder Carl Icahn's plan to unseat the board and push through a deal with Microsoft, essentially holding its ground. Yahoo (YHOO, Fortune 500) shares were barely changed Friday. (Full story).

A number of retailers reported better-than-expected earnings, including Abercrombie & Fitch (ANF), Nordstrom (JWN, Fortune 500) and Kohl's (KSS, Fortune 500). Abercrombie shares rose, Nordstrom shares were flat and Kohl's shares fell.

On the upside, the spike in oil prices boosted oil services stocks, including Exxon Mobil (XOM, Fortune 500), Chevron (CVX, Fortune 500) and Marathon Oil (MRO, Fortune 500).

Market breadth was negative. On the New York Stock Exchange, losers beat winners 8 to 7 on volume of 730 million shares. On the Nasdaq, decliners beat advancers three to two as 1.26 billion shares changed hands.

Commodity prices: U.S. light crude oil for June delivery rallied $2.43 to $126.55 a barrel on the NYMEX after hitting an all-time electronic trading high of $127.82 earlier.

The national average price for a gallon of regular unleaded gas rose to a record $3.787 from $3.776 the previous day, according to AAA. It was the ninth record in a row.

COMEX gold for August delivery rose $23.10 to $907.20 an ounce.

Other markets: The dollar fell versus the euro and yen.

Treasury prices rallied, lowering the yield on the ten-year note to 3.79% from 3.84% late Thursday. Bond prices and yields move in opposite directions.