Dow drops below 10,000

US investors sent stocks falling sharply for a second day in a row today as crude oil prices surged near 55 per barrel.

The Dow Jones industrial average, having fallen 153 points over two days, dropped back below 10,000.

Crude oil futures continued a record-setting trend today, with prices reaching 54.90 a barrel in intraday trading.

While crude inventories rose more than expected, according to a government report, reserves of distillates such as heating oil dropped substantially.

A barrel of light crude for November delivery closed at a record 54.76, up 1.12, on the New York Mercantile Exchange.

“The biggest thing that would help the markets right now would be a sustained drop in crude oil, but I’m not holding my breath for that,” said Lincoln Anderson, chief investment officer for LPL Financial Services in Boston.

General Motors missed its earnings forecasts by a wide margin and lowered its full-year outlook, leaving Wall Street fearing that the slower economy and soaring energy prices could lead other major companies into similar problems.

The Dow Jones industrial average fell 107.88, or 1.1%, to 9,894.45, its lowest close since August 13, after falling 74.85 the previous session. The Dow closed below 10,000 for the first time since September 27.

Broader stock indicators were substantially lower. The Standard & Poor’s 500 index was down 10.36, or 0.9%, at 1,103.29, and the Nasdaq composite index dropped 17.51, or 0.9%, to 1,903.02.

GM’s earnings weighed heavily on car manufacturers and parts makers, while an investigation by New York’s attorney general into improprieties in a number of insurance companies pressured the financial sector.

Only the energy sector managed any meaningful gains, thanks to the continued rise in oil prices.

A raft of disappointing economic figures also weighed on the market. According to the Commerce Department, the US’s trade deficit climbed to 54 billion in August, the second-highest level in history and 6.9% higher than July. And a weak dollar overseas contributed to a 2.9% increase in the price of imported goods in September.

The Labour Department reported a larger-than-expected increase in first-time jobless claims last week, with claims rising 15,000 to 352,000. The four-week moving average of claims, seen as a more reliable indicator of unemployment, rose by 4,000 to a seven-month high of 352,000.

With the soft economy and rising oil prices, GM’s results were particularly worrisome for investors. The company reported earnings of 78 cents per share, far less than the 96 cents per share Wall Street expected, and lowered its full-year outlook by nearly 1 per share. GM, a Dow component, slid 2.46 to 38.84.

“Most investors have realised for a while that the US car industry has been losing market share to the Japanese,” said Michael Sheldon, chief market strategist at Spencer Clarke LLC. “But the scope of GM’s earning miss today, and that they’re lowering guidance for the fourth quarter and the year, calls into question just how weak earnings may be over the next several quarters for the auto industry.”

Financial stocks fared much better, with Dow stock Citigroup surpassing Wall Street estimates by 3 cents per share and Bank of America beating forecasts by a penny per share. Nonetheless, Citigroup fell 41 cents to 43.70, while Bank of America fell 80 cents to 44.20.

A mix of news from technology companies pressured tech shares. Apple Computer surged 5.23, or 13.2%, to 44.98 after it doubled its profits from a year ago due to strong sales of its iPod music players, beating Wall Street forecasts by 8 cents per share after one-time charges.

However, computer memory producer SanDisk missed analysts’ estimates by 5 cents per share despite strong sales. SanDisk plummeted 7.68, or 27.2%, to 20.52.

Morgan Stanley cut its rating on Hewlett-Packard to “equal weight” from “overweight,” citing the Dow component’s loss of market share and increased competition. H-P was down 52 cents at 18.38.

Declining issues outnumbered advancers by more than 4 to 3 on the New York Stock Exchange, where volume totalled 1.49 billion shares, compared with 1.55 billion on Wednesday.

The Russell 2000 index of smaller companies was down 4.54, or 0.8%, at 564.88.