US stocks plummet as Middle East tension rises

US stocks plunged for a second session in a row today as Wall Street battled a storm of negative factors – soaring oil prices, interest rate jitters and a slowing economy.

The Dow Jones industrial average dropped almost 167 points, bringing its two-day loss to 288.

Escalating tension in the Middle East carried oil near $77 a barrel, which compounded worries over Merrill Lynch’s warning that higher lending rates and petrol prices would probably put pressure on consumer spending at Asda owners Wal-Mart.

SAP AG rattled investors further after reporting weak software sales last quarter.

Many on Wall Street worried that the day’s headlines signalled a worst-case scenario.

Continued gains in energy prices could prompt the Federal Reserve to keep raising interest rates to contain inflation, but the recent spate of downbeat earnings news suggested US economic growth was already moderating.

Investors fear higher rates in a cooling economy could lead to a recession.

“At this point in the cycle, you have questions about how much inflation is rising, what the Fed will do and how much growth will slow,” said Scott Wren, senior equity strategist at AG Edwards & Sons.

“That’s a debate that’s going to be worked out over time. If you’re going to buy stocks, you have to take a stance” on where those numbers are headed.

The Dow slid 166.89, or 1.52%, to 10,846.29. On Wednesday, the blue-chip index sank 121 points.

Broader stock indicators declined. The Standard & Poor’s 500 index lost 16.31, or 1.3%, to 1,242.29.

The Nasdaq composite index dropped 36.13, or 1.73%, to 2,054.11, its lowest level since last October.