US stocks mixed as oil prices fall

Wall Street was encouraged by a sharp drop in oil prices today and rebounded from its lows of Tuesday to close with just a narrow loss.

The market drew support from upbeat earnings news from Johnson & Johnson and Merrill Lynch.

Initially, Wall Street’s worries over oil grew as the International Energy Agency raised its forecast for world demand, and as price speculation increased after the Russian government ordered the sale of part of Yukos, that nation’s top producer, to pay back taxes.

While that pushed oil prices to a new intraday high of 54.45 in early trading, prices later fell sharply in what analysts suggested was an overdue correction in prices.

A barrel of light crude settled at 52.51, down 1.13, on the New York Mercantile Exchange.

The drop in oil also allowed investors to enjoy positive earnings from Johnson & Johnson, as well as a fairly good outlook from Merrill Lynch, even though revenues at the brokerage were lower than expected. The bulk of earnings reports are still to come over the next few weeks.

The Dow Jones industrial average fell 4.79, or 0.05%, to 10,077.18. The Dow had been down more than 64 points earlier in the session.

Broader stock indicators were narrowly lower. The Standard & Poor’s 500 index was down 2.55, or 0.23%, at 1,121.84, and the Nasdaq composite index dropped 3.59, or 0.19%, to 1,925.17.

After five days of record-high closing prices for oil futures, the dip in oil prices was a relief on Wall Street. With third-quarter earnings already depressed due to the summer’s high fuel costs, the winter heating oil season could bring even more price pressure.

That, investors feared, could lead to higher business costs and lower consumer spending, pressuring corporate margins in both directions.

“It’s clear that the price of oil has reached a level that creates real questions about earnings and the economy in 2005,” said Hugh Johnson, chief investment officer at First Albany Corp.

“Add to that concerns about third quarter earnings, though I think most people recognise they’re going to be lower than we’ve seen in the past.”

Johnson & Johnson gained 1.46 to 56.82 after beating both revenue and earnings estimates for the third quarter. Profits rose 13% from a year ago. Prescription drug and over-the-counter skin care sales helped boost revenues.

A rough quarter for the markets hurt Merrill Lynch’s earnings, as revenues fell 3% and earnings dropped 8% for the third quarter.

The company blamed unusually light trading on Wall Street for lower revenues, which missed analysts’ forecasts, though the brokerage managed to surpass Wall Street earnings expectations by a penny per share and gave a brighter outlook for the fourth quarter. Merrill Lynch rose 1.48 to 52.48.

M&T Bank climbed 1.87 to 101.70 after it credited a strong loan business and higher interest income for a 19% surge in third-quarter profits. The company beat earnings expectations by 5 cents per share.

According to media reports, General Motors will cut 12,000 jobs in Europe, one in six of its European workforce, as part of a broad restructuring of its operations there. General Motors was up 38 cents at 41.80.

Declining issues outnumbered advancers by nearly 5 to 4 on the New York Stock Exchange, where volume came to 1.32 billion shares, compared with 943.82 million on Monday, when trading was lighter than usual due to the Columbus Day holiday.

The Russell 2000 index of smaller companies was down 0.85, or 0.2%, at 576.71.