Crude tops $86 a barrel; stocks slump

Stocks tumbled today as crude soared to a record $86.13 a barrel in New York and investors worried about corporate earnings.

At the close, the Dow Jones industrials fell about 108 points, or 0.8%, to 13,985. The Standard & Poor's 500 Index was off 13 points, or 0.8%, to just under 1,549, and the Nasdaq Composite Index slid 26 points, or 0.9%, to 2,780.

It was the Dow's worst loss since Sept. 7. But the good news was that the major indexes trimmed their losses substantially in the last 90 minutes of trading. The Dow had been down 188 points around 3:15 p.m. ET.

Crude oil jumped on worries that Turkish forces might invade northern Iraq to combat attacks from the rebel Kurdistan Workers' Party. Many of Iraq's largest oil fields are located in the north, so an attack might disrupt oil shipments and lead to higher winter heating prices.

A number of analysts said they believe crude will hit $100 by year-end.

"Everything imaginable is going wrong as far as the oil market is concerned," Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington, told Bloomberg News.

"Turkey is saber-rattling, Iraq isn't calming down, Iran is also saber rattling and supplies are tight."

Not only did crude jump, but wholesale futures prices for natural gas, heating oil and gasoline also shot up. Natural gas was up 6.8% to $7.445 per million British thermal units. Gasoline closed at $2.158 a gallon, up 3.5% from Friday, and heating oil finished at $2.307 a gallon, up 2.7%.

The gasoline price increase suggests retail prices will be moving higher. AAA's daily survey today showed the national average retail price at $2.575 a gallon, down slightly from Friday and down four cents a gallon from a month ago. But the retail average is up 23.5% from a year ago.

The oil price rise helped energy stocks and limited the rest of the market.

The oil-price jump was great for energy stocks and lousy for the rest of the stock market. The Amex Oil Index ($XOI.X) was up 1% to 1,495, and the Philadelphia Oil Service Sector Index ($OSX.X) rose 0.7% to 311. Oil giant ExxonMobil (XOM, news, msgs) led the Dow with a 1.4% gain to $94.82. Oil-services giant Schlumberger (SLB, news, msgs), one of the year's hottest stocks, was up 1.4% to $111.39.

• Top Stocks blog: Drilling for oil stocks

Airlines, meanwhile, took a big beating. American Airlines parent AMR Corp. (AMR, news, msgs) was off 3.5% to $24.26, and Continental Airlines (CAL, news, msgs) fell 3.7% to $35.76.

ExxonMobil was just one of only four of the 30 Dow stocks that were higher this afternoon. Intel (INTC, news, msgs) was up nearly 0.8% to $25.75 on investor optimism about its third-quarter earnings report due Tuesday after the market close.

• Video: Former ExxonMobil CEO Lee Raymond discusses crude at $86

The laggards included General Motors (GM, news, msgs), down 3.6% to $41.11. Investors looked to be taking profits after the stock jumped nearly 12% last week.

Citigroup's (C, news, msgs) was the second-worst performer, down 3.4% to $46.24.

About 408 S&P 500 stocks were lower. Tektronix (TEK, news, msgs) was the S&P leader, jumping nearly 34% to $37.85. The electrical testing company agreed to merge with Danaher (DHR, news, msgs) in a 2.8% billion.

Second was Biogen Idec (BIIB, news, msgs), the biotech company that put itself on the block last week. Analysts see the bidding for the company hitting $25 billion or more. The stock was up nearly 19% to $82.51.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$86.13	$83.69	$2.44	5.47%	41.08%
Heating oil (per gallon)	$2.3072	$2.2464	$0.0608	3.10%	44.39%
Natural gas (per million BTU)	$7.4450	$6.9740	$0.4710	8.37%	18.19%
Unleaded gasoline (per gallon)	$2.1575	$2.0851	$0.0724	4.31%	34.67%

Genentech results are strong, but shares slip

After today's close, shares of Genentech (DNA, news, msgs) fell 1% to $76.75 despite reporting a 21% increase in third-quarter profit. Better-than expected sales of its Avastin cancer medicine helped profits, but sales of the Genentech's other important drugs fell short of Wall Street expectations.

U.S. sales of the colon and lung cancer drug Avastin, which most analysts view as the key barometer of Genentech's fortunes, rose 37% to $597 million, topping Wall Street expectations of about $585 million.

The biotech giant earned $685 million, or 64 cents per share, up from $568 million, or 53 cents per share, a year ago. Excluding items, Genentech earned 73 cents per share, slightly beating analysts' average expectation of 72 cents per share, Reuters said. The company also maintained its forecast for full-year earnings per share growth of 28% to 32%.

Some analysts' fears that Avastin sales would be down from the previous quarter also proved unfounded. The drug had sales of $564 million in the second quarter.

But sales of the eye-disease drug Lucentis, Rituxan, used to treat non-Hodgkin's lymphoma and rheumatoid arthritis and the breast cancer treatment Herceptin were a bit less than analysts had expected.

Swiss drugmaker Roche Holding (RHHBY, news, msgs), which owns a majority stake in Genentech, records sales of Genentech drugs outside the United States.

In regular trading, Genentech had closed up 0.3% to $77.50.

IBM, Johnson & Johnson, Delta Air and Yahoo reports due Tuesday

In addition to Intel's earnings, tomorrow will feature earnings reports from IBM Corp. (IBM, news, msgs), Yahoo (YHOO, news, msgs), Johnson & Johnson (JNJ, news, msgs) and Delta Air Lines (DAL, news, msgs).

• Video: Looking ahead to tech earnings

JPMorgan reports earnings on Wednesday, and Bank of America follows on Thursday.

This week "is when we begin to see the real flow of earnings, but we also have some major economic news," Peter Cardillo, chief market economist at Avalon Partners, told MarketWatch.com. "The market is still seeing some momentum buying having to do with hopes for rate cuts, which may not be in the cards, at least not for Halloween."

The Federal Reserve lowered the federal funds rate to 4.75% in September. The Fed will meet again on Oct. 30 and 31.

Citigroup sees some trouble areas

Citigroup's profit for the third quarter plunged 57% to $2.38 billion, or 47 cents per share, down from $5.51 billion, or $1.10 per share, in the same period last year.

The earnings weren't as bad as had been expected -- analysts were expecting Citi to earn 44 cents per share. Citi shares tumbled 3.4% to $46.24.

Two things in the report clobbered the stock, The Wall Street Journal said. Citigroup didn't repeat its earlier remarks that the business environment appears to be returning to normal, and in fact said that areas such as consumer-mortgage delinquencies could get worse. It also doesn't expect its investment bank to achieve a full and speedy recovery from the recent credit-market meltdown.

• Video: Should you buy Citigroup shares?

Citigroup's earnings included write-downs of $1.56 billion for subprime mortgages, $1.35 billion for leveraged loans, and $646 million from losses in fixed-income trading.

Earlier this month, the bank had warned that profit for the quarter would fall about 60% because of bad bets on the subprime-mortgage market.

The quarterly decline was the bank's biggest in three years.

The report battered financial stocks. The Amex Securities/Broker Deal Index ($XBD.X) was off 1.7% to 238. Goldman Sachs (GS, news, msgs) was down 1.8% to $229.34. Lehman Bros. (LEH, news, msgs) fell 3.6% to $62.33. Citigroup rivals JPMorgan Chase (JPM, news, msgs) and Bank of America (BAC, news, msgs) were down 1.2% and 1.3% to $46.32 and $51.42, respectively.

Citigroup was one of several financial companies that had predicted an ugly quarter because of the mortgage and credit mess in August. Merrill Lynch (MER, news, msgs), Bank of America, Deutsche Bank (DB, news, msgs) and UBS AG (UBS, news, msgs) have all warned for the quarter.

Chuck Prince to go?

The question now is whether CEO Chuck Prince will stay at the helm of Citigroup.

CNBC's Jim Cramer predicted that Prince will be out the door in coming days, but another analyst said the poor results were not his fault. "I don't think you could point the finger at Prince and say that it's his fault the credit markets froze up," PNC Wealth Management money manager Mark Batty told Bloomberg News.

• Get free, real-time stock quotes on MSN Money

On Friday, Citigroup announced one big management shake-up. The bank said it is merging its investment banking and alternative investment divisions, putting Vikram Pandit in charge of its trading, investment banking and alternative investment business. Thomas Maheras and Randy Barker, who had been top players in trading and fixed income, were pushed out.

Banks to create bailout fund

In a move reminiscent of 1999, when the big financial institutions gathered together to bail out collapsing hedge fund Long Term Capital Management, banks including Citigroup, JPMorgan Chase and Bank of America have been talking with Treasury Department Secretary Hank Paulson about creating a fund to protect against future liquidity problems in the credit and mortgage markets.

• Video: Superfund to the rescue

The banks will each contribute billions to establish a fund of between $80 billion and $100 billion, which will buy assets from structured investment vehicles (SIVs), according to an announcement this morning. The fund would help prevent SIVs from being forced to dump huge amounts of mortgage-backed securities into the already-troubled markets, further driving down prices in a fire sale.

"This is mostly symbolic," Christian Stracke, a strategist at bond research firm CreditSights, told Bloomberg News. "The banks were going to need to inject more liquidity into the SIVs anyway, so the public cooperation just makes the bailouts of SIVs seem more orderly."

SIVs, which are affiliated with banks but operate separately, use the banks' high credit ratings to issue short-term commercial paper at low interest rates. They then buy riskier asset-backed securities with higher yields.

The problems come when the assets backing the vehicles lose value or when there is a credit crunch.

Banks like Citigroup, which had set up huge SIVs, got hit when the subprime-mortgage market imploded, as many of the SIVs' securities were backed by subprime mortgages. That meltdown contributed to summer's credit crunch.

An announcement about the fund could come as early as today.

Medtronic pulls device off market

Shares of medical-device maker Medtronic (MDT, news, msgs) took a dive today after the company said it is halting sales of electrical wires that connect more than 200,000 people's hearts to defibrillators. The company said the wires might have caused five deaths.

Medtronic said that the devices, called "leads," might break or accidentally send an electrical jolt to the heart and should not be used. (Medtronic is not recommending that patients who already have the leads in place replace the devices as a precaution.)

The company also said the suspension would hurt revenue for the quarter. Medtronic said sales would be lower by between $150 million and $250 million.

Shares of the stock tanked 11% to $50 on the day.

Mattel reports slight drop in profit

Toy maker Mattel (MAT, news, msgs), which has been hit by massive toy recalls, reported a 1% drop in net income for the third quarter. Earnings fell to $236.8 million, or 61 cents per share, from $239 million, or 62 cents per share, in the same period a year ago. The numbers include $40 million related to Mattel's recalls.Analysts had been looking for earnings of 70 cents per share.

Shares of Mattel closed down 1% to $22.22.

• Video: Airbus vs. Boeing

Sales for the quarter rose nearly 3% to $1.84 billion, but missed analysts' expectations of $1.91 billion in revenue.

Over the past few months, Mattel has pulled from shelves more than 21 million toys made in China because they had lead paint.

The company also said that sales of Barbie, its biggest brand, fell 4%. Sales of the doll in the U.S. fell 19%.

Short hits from the markets -- 4 p.m. ET

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	4.160%	4.080%	0.080	12.43%	-14.84%
5-year Treasury note yield	4.390%	4.413%	-0.023	3.81%	-6.62%
10-year Treasury note yield	4.673%	4.687%	-0.014	2.05%	-0.79%
30-year Treasury bond yield	4.907%	4.905%	0.002	1.53%	1.85%
Currencies
U.S. Dollar Index	78.02	78.16	-0.14	0.51%	-6.32%
British pound in dollars	$2.0442	$2.0367	0.0075	-0.16%	4.31%
Dollar in British pounds	£0.4892	£0.4910	-0.0018	0.16%	-4.13%
Euro in dollars	1.4211	1.4188	0.0022	-0.40%	7.66%
Dollar in euros	€ 0.7037	€ 0.7048	-0.0011	0.40%	-7.11%
Dollar in yen	¥117.39	¥117.41	-0.02	2.30%	-1.37%
Commodities
Gold	$762.20	$753.80	$8.40	1.63%	19.47%
Copper	$3.6860	$3.6525	$0.034	1.26%	28.39%
Silver	$13.8550	$13.9030	-$0.05	-0.47%	7.48%
Crude oil (NYMEX) (per barrel)	$86.13	$83.69	$2.44	5.47%	41.08%

Fox Business Network launches

Rupert Murdoch's dream is finally coming true: His News Corp.'s (NWS, news, msgs) Fox Business Network hits the airwaves today after years of talk and a big purchase of Dow Jones (DJ, news, msgs) for $5 billion.

Fox Business Network's aim is to make business news more appealing to people who may not know much about finance and the stock market. They "intend to target middle America," University of North Carolina at Chapel Hill business journalism professor Chris Roush told The New York Times.

The channel will rival General Electric's (GE, news, msgs) CNBC and Bloomberg TV.

FBN, as the network is called, replaced MSNBC for much of the New York city market, taking over channel 43 on Time Warner Cable's (TWC, news, msgs) lineup; MSNBC moved up to channel 14.

News Corp. shares fell 1.6% to $23.96.

By Charley Blaine and Elizabeth Strott