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Slumping crude oil prices drag energy shares lower

INVESTORS sent stocks sliding after another tumble in oil prices eroded hopes for a speedy recovery in the U.S. economy.

Major stock indexes skidded 2 percent yesterday as crude fell for the fifth straight day, the latest indicator that investors think demand for energy and basic materials will remain soft. The Dow Jones industrial average fell 161 points to its lowest close since late April.

Trading volume remained thin amid a dearth of news about the economy this week and as investors await the beginning of the second-quarter earnings season, which starts Wednesday with aluminum maker and Dow component Alcoa Inc.

Stocks have drifted lower in recent days as the market's confidence about the economy took hits from a poor jobs report for June, waning consumer confidence and plunging commodities prices.

That stoked fears that the market might have gotten ahead of itself in March and April, when investors sent stocks soaring in hopes that a nearly two-year-long recession will end some time this year. The next guideposts for the market will be the forecasts companies give during earnings reports about how business conditions look for the rest of the year.

"Uncertainty has crept back into the picture," said Carl Beck, partner at Harris Financial Group. "We started to get some data that put a damper on some of the optimism that had been growing about the economic recovery and that sort of put everything on hold until we start hearing from companies."

The Dow fell 161.27, or 1.9 percent, to 8,163.60. It was the lowest finish for the blue chips since April 28.

The broader Standard & Poor's 500 index fell 17.69, or 2 percent, to 881.03, its lowest finish since May 1. The Nasdaq composite index lost 41.23, or 2.3 percent, to 1,746.17, the lowest close since May 27.

Stocks finished mixed on Monday after all the major indexes posted losses last week. The Dow and the S&P 500 have shed about 7 percent since their recent highs on June 12.

Oil tumbled from an eight-month high hit last week on concerns that a weak economy will dampen demand for energy.

Light, sweet crude fell US$1.12 to settle at US$62.93 a barrel on the New York Mercantile Exchange, helping to send Exxon Mobil Corp. down US$1.54, or 2.3 percent, to US$66.56, while ConocoPhillips lost 84 cents, or 2.1 percent, to US$39.99.

Doreen Mogavero, president of brokerage Mogavero, Lee & Co., said light trading volume meant many investors were standing on the sidelines. She said discussions in Washington and on trading desks about the potential for more government stimulus spending was unnerving.

"Once you start saying this is something we might have to do again, that says it's not working and that's not good," she said.

Disappointing economic news over the last few weeks, culminating in Thursday's worse-than-expected jobs report for June, has undermined investors' belief that the economy would rebound significantly.

Corporate results begin to float in this week, putting investors on edge. Analysts say expectations are still relatively low, so companies could do better than what the market has forecast. At the same time, companies have cut costs dramatically in recent months, which could boost profits.

"Over the next few weeks, we'll get a real sense for whether there are reasons to be optimistic about the business outlook during the second half of 2009," said Michael Sheldon, chief market strategist at RDM Financial.

As they await more details from companies, investors have begun to take a more defensive stance.

Despite the overall weakness in the market yesterday, there was some buying of health care stocks after an analyst said the White House had signaled it would be open to negotiation on a public insurance option in its drive to reform health care, which would benefit managed-care companies.

Aetna Inc. jumped more than 6 percent, adding US$1.53 to US$25.94. Cigna Corp. rose more than 7 percent, gaining US$1.77 to US$25.24.

Declining issues outnumbered advancers by more than three to one on the New York Stock Exchange, where volume came to a low 1.1 billion shares and was essentially flat with Monday.

Bond prices were mostly higher as investors looked for safety. Results from an auction of US$35 billion in three-year notes were mixed but demand was robust.

Investors have been worried in recent weeks that the government may have to raise interest rates to entice buyers as it issues massive amounts of debt to fund its stimulus programs. So far though, auctions have been going relatively smoothly.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.46 percent from 3.51 percent late Monday.


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