Bear scare on Wall Street
Stocks tumble for the day and the week, with the Dow briefly falling into bear market, as oil prices set record and dollar slides.
NEW YORK (CNNMoney.com) -- Stocks slipped Friday, with the Dow briefly crossing into bear market territory, as record-high oil prices, a weak dollar and more financial market woes rattled investors for a second session.
The Dow Jones industrial average (INDU) lost over 100 points, or 0.9%, to end at a more than 21-month low. For a while, the selloff sent the blue-chip indicator to levels at least 20% below the fall highs, meaning it met the technical definition of a bear market. On Thursday, the Dow lost 358 points.
The broader Standard & Poor's 500 (SPX) index fell 0.4%, after hitting a 22-month low during the session.
The tech-heavy Nasdaq composite (COMP) fell 0.3%. The Nasdaq hit the technical definition of a bear market in March, falling 24% off its October highs, but has partially recovered since then.
Stocks posted bigger losses in midafternoon trade, but managed to close off the lows. All three major gauges fell for the week.
"You have a very jittery market that's vulnerable to whatever the news is on a given day," said James King, chief investment officer at National Penn Investors Trust.
However, he said that the selloff is probably nearing a bottom.
"We took a hit through March, bounced back, and now we've seen another hit," King said. "But I don't think the low for the year is too far from here."
Stocks fell to the lows of the session Friday after Moody's said it could cut Morgan Stanley's (MS, Fortune 500) long-term debt rating and oil prices hit a record $142.99 a barrel.
The oil market rally has sped up over the last few days, exacerbating worries about how the consumer and the economy will be able to withstand the spike in fuel costs.
Oil - more than the credit crisis or any other macro issue - is dragging on the markets right now, said Charles Smith, chief investment officer at Fort Pitt Capital Group.
"The stock market, I think, views the commodity and energy mania as a permanent problem," Smith said. "The problems that come from higher and continually rising prices don't seem like they are going to end."
Stocks tumbled Thursday, with the Dow recording its second-biggest slide of the year, as oil prices spiked to fresh records and a brokerage downgraded Citigroup and other banks. The two events exacerbated fears about inflation and the credit crisis, sparking a broad stock selloff.
Such worries remained in place Friday, as oil prices hit a fresh record. Inflationary fears were initially tempered by a stronger-than-expected report on May personal income and spending. But the rise was soon shrugged off as a temporary reflection of the government's economic stimulus program, rather than a turning point for the consumer.
Next week is shortened by the Fourth of July holiday, with markets closing early on Thursday ahead of the long weekend. Plenty of economic news is on tap, however, including reports on manufacturing, construction, factory orders and the labor market.
Oil and gas prices. U.S. light crude for August delivery reached a record high of $142.99 a barrel on the New York Mercantile Exchange before pulling back to settle at $140.21 a barrel, up 57 cents. (Full story).
"Oil and commodity markets have rioted over the fact that the Fed has not indicated it will raise rates," Smith said. "But the Fed is in a box and can't raise rates now because of the economy."
On Wednesday, the Federal Reserve ended its nine-month rate-cutting campaign, holding a key short-term interest rate steady at 2%. In its closely watched statement, the central bank said that the economy had improved somewhat, but that inflationary pressures continued to rise.
The national average price for a gallon of regular unleaded gas fell to $4.066 from $4.067 the previous day, according to AAA. (Full story).
Banks to see bigger losses. Merrill Lynch could post a $5.4 billion second-quarter writedown, Lehman Brothers said, due to its exposure to bond insurers. That's more than currently expected. Merrill (MER, Fortune 500) shares fell 1%. (Full story).
In addition, AIG (AIG, Fortune 500) likely will take $5 billion in quarterly losses from its insurance units, which have been hit by $13 billion in writedowns, according to published reports. AIG shares slipped more than 2%.
Other banks declined, led by JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Wachovia (WB, Fortune 500).
Earnings news. Micron Technology (MU, Fortune 500) posted a wider-than-expected quarterly loss late Thursday, despite higher revenue, due to pricing pressures. Shares fell 12.7%.
KB Home (KBH, Fortune 500) reported a bigger second-quarter loss that was steeper than expected, reflecting the ongoing slump in the home market. Shares lost 2.3%.
Market breadth was negative. On the New York Stock Exchange, losers trumped winners by nearly 2 to 1 on volume of 850 million shares. On the Nasdaq, decliners beat advancers 9 to 5 on volume of 1.4 billion shares.
Other markets: In currency trading, the dollar fell versus the euro and the yen.
In the bond market, Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.96% from 4.03% late Thursday. Bond prices and yields move in opposite directions.
COMEX gold for August delivery rose $16.20 to settle at $931.30 an ounce.
Economic news. Personal income jumped 1.9% in May, and 0.4% excluding the stimulus payments. The 0.4% rise was in line with estimates. Income rose 0.4% in April. Personal income rose 0.8%, topping the forecast for a rise of 0.7%. The report's closely watched inflation component rose a smaller-than-expected 0.1%.
In other economic news, the June consumer sentiment index from the University of Michigan was revised down to 56.4, a near 50-year low, from the previous reading of 56.7. Economists thought it would hold steady at 56.7. 
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