US stocks: Prices fall on record oil, GM-Ford drop

NEW YORK - US stocks fell on Wednesday, wiping out earlier gains, after oil hit a new all-time high, raising fears that consumer spending and corporate earnings will be hurt later in the year.

A bigger-than-expected decline in US durable goods orders in July pummeled manufacturers like Caterpillar Inc., the world's largest maker of earth-moving equipment, down 2.7 per cent at US$53.21, and United Technologies Corp. down 1.5 per cent at US$50.74. Both dragged on the Dow.

The Dow Jones industrial average slid 84.71 points, or 0.81 per cent, to end at 10,434.87. The Standard & Poor's 500 index dropped 8.00 points, or 0.66 per cent, to finish at 1,209.59. The technology-laced Nasdaq Composite Index shed 8.34 points, or 0.39 per cent, to close at 2,128.91.

"Oil remains one of the biggest themes weighing on the stock markets," said Bill Strazzullo, chief market strategist at State Street Global Markets in Boston. "It puts a cap in any stock-index appreciation. The concern is that companies won't be able to keep avoiding price increases if oil continues this high for an extended period of time." US crude oil futures for October delivery rose US$1.61 to settle at a record US$67.32 a barrel on the New York Mercantile Exchange. Earlier, it hit US$67.40 -- the highest price since NYMEX started trading crude oil futures in 1983.

The price jump followed government data showing US petrol supplies fell more than expected last week.

Energy shares got another boost after Morgan Stanley lifted its 2005 earnings estimates on five major energy companies. ConocoPhillips rose 0.9 per cent, or 54 cents, to US$63.2, and Sunoco Inc. climbed 2.4 per cent, or US$1.47, to US$63.85, both on the NYSE.

When oil hit US$67 a barrel in afternoon trading, the major stock indexes gave up their gains.

HOME SWEET HOME SALES

Earlier, stocks had climbed after a report showed new US home sales surged unexpectedly in July to a record high in a positive sign of economic growth. Sales of new homes rose 6.5 per cent to a seasonally adjusted annual rate of 1.41 million units, in contrast to analysts' estimates for a drop in sales to a pace of 1.33 million units.

"Investors are very worried about real estate, and any figures that ease those concerns bode well for the market," said Milton Ezrati, senior economic strategist, Lord Abbett & Co. "Still, high oil prices remain a worry." Home builders' shares closed higher, shaking off the drag of higher oil prices and reversing Tuesday's declines after a weak existing home sales report. An index of home-building shares rose 1.4 per cent to 968.24.

Shares of D.R. Horton Inc., the No. 1 US home builder, rose 1 per cent, or 39 cents, to US$35.31, while Pulte Homes Inc., the No. 2 US home builder, gained 1.6 per cent, or US$1.36, to US$84.84.

The pleasant surprise of a jump in new home sales helped the stock market recover from the weaker-than-expected durable goods report, released before the opening bell. Orders for US durable goods tumbled 4.9 per cent in July, the biggest drop since January 2004, as demand for most manufactured items fell, the government said.

DOWNGRADE HITS GM, FORD AFTER BELL

After the closing bell, General Motors Corp.and Ford Motor Co. gave up their regular session gains and fell after Moody's Investors Service cut their debt ratings to "junk" status. Moody's also cut its rating on the debt of GM's finance arm, General Motors Acceptance Corp., to "junk." Moody's was the last of the three major rating services to cut GM's debt to "junk" status.

GM shares fell nearly 1 per cent, or 27 cents,to US$34 on the Inet electronic brokerage network from an NYSE close at US$34.27. Ford's stock slipped to US$9.82 on Inet, down from its close at US$9.92 on the NYSE.

During regular trading, shares of GM, the world's largest automaker, rose 2.2 per cent after a Wall Street Journal article reported that the United Auto Workers union said it is considering helping the company cut costs. Ford's stock gained 1.2 per cent in the regular session.

On Nasdaq, shares of Google Inc. rose 1.1 per cent, or US$2.99, to US$282.57 after the largest Web search engine company said it would introduce its own instant messaging system.

Trading was active on the New York Stock Exchange, where decliners beat advancers by a ratio of about 5 to 4, with about 1.45 billion shares changing hands, close to the 1.46 billion daily average for last year.

On Nasdaq, decliners also outnumbered advancers by a ratio of about 5 to 4, with about 1.77 billion shares changing hands, below the 1.81 billion daily average last year.

- REUTERS