US stocks sink as oil price soars

US stocks sank amid increasing pessimism on Wall Street today, shedding early gains after oil prices reached another record high and a mix of data provided conflicting views on the economy.

The surge in crude prices wiped out the advance that followed the Energy Department’s latest inventory report, which showed a strong buildup of heating oil and distillate stocks.

Concerns about a drawdown in crude oil and a tropical storm threatening oil facilities pushed crude futures to a new record. A barrel of light crude surged US$1.61 (€1.31) to settle at US$67.32 (€54.89) on the New York Mercantile Exchange, surpassing the previous record settlement of US$66.86 (€54.52) per barrel on August 12.

The market’s earlier momentum grew out of the Commerce Department’s latest report on new home sales, which rose to an annualised 1.41m units, better than the 1.328m home sales expected. But the US government also reported a sharp decline in orders for big-ticket manufactured goods – leading investors to wonder whether an economic slowdown was imminent.

“In all you’re seeing sort of a mixed reaction out there,” said Brian Williamson, an equity trader at The Boston Company Asset Management. “The oil data was good because of the distillates, but you’re still seeing oil prices higher because of demand. And we’re seeing a lot of volatility across the board.”

The Dow Jones industrial average fell 84.71, or 0.81%, to 10,434.87.

Broader stock indicators also lost ground. The Standard & Poor’s 500 lost 8.00, or 0.66%, to 1,209.59 – falling back into negative territory for the year. The Nasdaq composite index dropped 8.34, or 0.39%, to 2,128.91.

Bonds traded in a narrow range throughout the day, with the yield on the 10-year Treasury note steady climbing to 4.17% from 4.18% late on Tuesday. The dollar was mixed against other major currencies, while gold prices fell.

Investors started the session with the Commerce Department’s report that durable goods – items designed to last at least three years – fell 4.9% in July, a sharp drop from the 1.9% climb in June and far steeper than the 1.5% drop economists had expected.

However, the home sales report helped home builder stocks rebound from the previous session’s losses. Toll Brothers gained 2.07 to 50, KB Home jumped 1.24 to 72.20 and Lennar rose 1.17 to 60.10. Yet even the housing report carried a caveat – while sales are up, the average price of a new home fell.

“Although there was some encouragement by new homes sales rising, prices declined. That suggests we are possibly getting a decline in prices, and that’s not good for consumer spending,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, noting that many consumers had refinanced their homes in order to continue spending at current levels. “Combined with the pinch from oil prices, this is not good for the market.”

While worries about high oil and petrol prices have already prompted warnings from much of the retail sector, high-end luxury retailers have yet to be affected. Coach climbed 1.35 to 33.99 after the handbag and leather-goods maker said its first-quarter profits would exceed Wall Street’s forecasts.

Poultry producer Pilgrim’s Pride reaffirmed its earnings outlook after rival Sanderson Farms posted a 29% drop in profits on Tuesday. Pilgrim’s Pride rose 11 cents to 31.21 while Sanderson Farms gained 63 cents to 36.40 after falling 7.6% on Tuesday.

Google added 2.99 to 282.57 after the Internet search company said it would create an instant messaging and voice chat program to rival popular chat programs from Time Warner’s America Online, Yahoo! and Microsoft.

Declining issues outnumbered advancers by about 6 to 5 on the New York Stock Exchange, where volume totalled 1.45bn shares, compared to 1.28bn on Tuesday.

The Russell 2000 index of smaller companies fell 0.46, or 0.07%, to 655.01.