Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Stocks end sharply lower as oil hits two-year high

February 22, 2011 |  1:38 pm

U.S. stocks tumbled Tuesday, with major market indexes suffering their biggest losses in months, as fears of spreading unrest in the Middle East drove crude oil prices higher for a second day.

The Dow Jones industrial average slumped 178.46 points, or 1.4%, to close at 12,212.79. It was the blue-chip index’s largest percentage decline since Nov. 16.

Broader indexes fell more sharply, with the Standard & Poor’s 500 index losing 27.57 points, or 2%, to 1,315.44, its worst one-day loss since Aug. 11.

Crude oil futures for March delivery closed at $93.57 a barrel, the highest price since Oct. 2008, as the energy market continued to be rocked by the popular revolt in Libya and by a major demonstration against the government in Bahrain.

Oiltrade A worsening situation in Libya had driven oil up $5.22, or 6%, to $91.42 a barrel in electronic trading Monday, when most U.S. markets were closed in observance of Presidents Day.

Early Tuesday the price rose as high as $94.49 in futures trading in New York, then pulled back after Saudi Arabia’s oil minister, Ali Ibrahim Naimi, said the Organization of the Petroleum Exporting Countries would be ready to produce more oil if needed -- but that for now, “there is absolutely no shortage of supply."

Later in the session crude prices rose again after Libyan strongman Moammar Kadafi pledged to die a martyr rather than give in to popular calls to resign.

The market fears that Kadafi could opt for a “scorched-earth policy” if he’s eventually forced out, said Phil Flynn, a commodities analyst at PFG Best Research in Chicago.

Libya is the world’s 12th-largest oil exporter, so any interruption of supplies from the North African country could lead to higher prices if it wasn’t made up by other producers, analysts said.

On Wall Street, Tuesday’s setback had been expected after violence in Libya escalated over the weekend.

The U.S. stock market has been in a steady uptrend since early September, buoyed by expectations that the economic recovery would gain momentum in 2011. The Dow and other indexes had reached multiyear highs Friday.

A pullback of even 10% in key indexes would be considered a normal “correction” within a continuing bull market, analysts noted.

The question is whether further unrest in the Middle East could push oil prices to levels that would threaten to sharply slow the global economy. That could drive more investors out of stocks and other risky investments.

“The thing that’s scaring people is the speed with which things are occurring” in the Middle East, said Peter Beutel, head of trading advisory firm Cameron Hanover in New Canaan, Conn.

Shares of airlines and other transportation companies were hit hard in Tuesday's slump on worries about fuel costs. UAL, parent of United and Continental, dived $2.48, or 9.2%, to $24.44. FedEx dropped $5.03, or 5.1%, to $93.29.

Some energy stocks rallied. Exxon Mobil rose 94 cents to $85.44 and Chevron added $1.60 to $100.32. But most energy issues were lower with the broad market. Occidental Petroleum slid $5.23 to $102.14.

Some investors pushed money into the classic havens of U.S. Treasury bonds and precious metals. The five-year T-note yield fell to a three-week low of 2.13% from 2.27% on Friday. Yields fall as bond prices rise.

Gold futures in New York rose $12.30 to $1,400.50 an ounce, nearing the record high closing price of $1,422.60 reached Jan. 3.

-- Tom Petruno

Photo: Oil traders in New York on Tuesday. Credit: Mario Tama / Getty Images