Dow plunges 395 as crude tops $139

By Charley Blaine and Elizabeth Strott

Crude oil closed above $138 a barrel for the first time on Friday, causing the Dow Jones industrials to fall nearly 400 points and increasing fears that that the damage to an already-soft economy from high fuel costs will worsen.

The Dow fell about 395 points, or more than 3.1% to 12,210. It was the worst loss for the blue chips since Feb. 27, 2007, when the Dow fell 416 points, or 3.3%, in the wake of a selloff in stocks in China.

The Standard & Poor's 500 Index fell 43 points, or 3.1%, to 1,361, and the Nasdaq Composite Index dropped 75 points, or 3%, to 2,475.

The Dow Jones Transportation Average ($DJT) was off 243 points, or 4.4%, to 5,250, as airline stocks in particular were staggered by the oil price increases. The point loss was its worst since Sept. 17, 2001, the first day of trading after the 9/11 terror attacks. The Amex Airline Index ($XAL.X) was off 6.9% to 19.22.

Crude oil jumped $10.75 a barrel to a new closing high of $138.54 and briefly touched $139.12. Most analysts said the falling dollar was the catalyst that sent crude higher.

But as big a problem was panic buying as oil appears to be in a price bubble, said Stephen Schork, who runs The Schork Report, a newsletter covering the energy markets.

The greenback was off 1.5% against both the euro and the Japanese yen. The U.S. Dollar Index, which measures the dollar against a basket of 12 currencies, was off 0.8% to 72.365.

The dollar is down 7.4% this year against the euro and 6.2% against the yen. The dollar index is off 5.7% on the year.

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Gasoline futures were up 6.4% to $3.5480, which means consumers face higher prices at the gas pump. AAA's daily survey of gasoline prices showed the national average retail price of gas at $3.986 a gallon, down slightly from Thursday but up 95 cents from a year ago.

The market's plunge started when the Labor Department issued a surprisingly gloomy report on U.S. unemployment.

The national unemployment rate jumped to 5.5% in May from 5% in April, the biggest one-month gain since February 1986. Nonfarm payrolls fell 49,000 from April to May, in line with economists' estimates, and the Labor Department revised payroll data for April and March lower as well.

A shaky market on Monday?

Monday's stock market could be quite shaky as traders react to any changes in oil prices.

The one positive event that's expected is an announcement from Apple (AAPL, news, msgs) about a new version of the iPhone. Apple was off 2% to $185.64.

Also on Monday, the National Association of Realtors will issue a report on pending home sales.

The Federal Reserve's beige book report on the economy comes out on Wednesday, and the Labor Department will release the monthly consumer price index report at the end of the week.

There are few big earnings reports scheduled, but there have been persistent rumors that Lehman Bros. (LEH, news, msgs) will report second-quarter results early.

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The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	12,209.81	12,638.32	-3.39%	-7.95%
S&P 500	1,360.68	1,400.38	-2.83%	-7.33%
Nasdaq Composite	2,474.56	2,522.66	-1.91%	-6.70%
Russell 2000	740.37	748.28	-1.06%	-3.35%
Crude oil per barrel	$138.54	$127.35	8.79%	44.34%
10-yr. Treasury yield	3.94%	4.05%	-2.67%	-2.40%
Gold per troy ounce	$899.00	$887.30	1.32%	7.28%

Oil, gold and Treasurys among the few safe havens

There were only a few places to hide in Friday's market: oil and precious metals and government securities. Gold jumped $23.50 or 2.7% to $899 an ounce and was trading above $900 in after-hours trading. The 10-year Treasury note yield fell to 3.94% from 4.03% on Thursday.

None of the 30 Dow stocks showed gains on Friday. A total of 483 S&P 500 stocks were lower, along with 98 Nadaq-100 ($NDX.X) stocks.

The only winners in the Nasdaq-100: biotech company Cephalon (CEPH, news, msgs), up 1.2% to $69.12, and Yahoo (YHOO, news, msgs), up 0.3% to $26.44. The index was off 65 points, or 3.2%, to 1,990.

Not even energy stocks had much of a day. Dow components Chevron (CVX, news, msgs) and ExxonMobil (XOM, news, msgs) had the best days of the 30 stocks in the index, but Chevron was off 0.5% to $99.50 and Exxon fell 2.8% to $86.79.

Worse -- and with little fanfare -- the troubled financial sector weakened appreciably. American International Group (AIG, news, msgs) was the worst Dow performer, off 6.8% to $33.93 on news of a federal investigation into charges that the insurance company had overstated that value of investment contracts tied to subprime mortgages.

Intel (INTC, news, msgs) was down 4.1% to $22.90 after disclosing that that the Federal Trade Commission has opened a formal antitrust investigation into the semiconductor giant's business practices.

Boeing (BA, news, msgs), down 5.4% to $73.16 on Friday, was the Dow's biggest loser on the week with a loss of 11.6%. Investors worried that the economic crisis that airlines now face may result in cancellations of orders for its 787 Dreamliner. Only three Dow stocks finished the week with gains, led by Hewlett-Packard (HPQ, news, msgs) up 1.2%.

The Dow finished the week with a 3.4% loss. The S&P 500 was down 2.8%, and the Nasdaq was off 1.9%. The Nasdaq has been stronger than the Dow and S&P because of strength in key stocks such as Amazon.com (AMZN, news, msgs), Oracle (ORCL, news, msgs) and Intel -- at least under Friday. Amazon.com was off 4.6% to $80.63, in part because its web site was down for two hours Friday.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$138.54	$127.79	$10.75	8.47%	44.34%
Heating oil (per gallon)	$3.9740	$3.6808	$0.2932	7.95%	50.00%
Natural gas (per million BTU)	$12.6930	$12.5190	$0.1740	8.35%	69.62%
Unleaded gasoline (per gallon)	$3.5480	$3.3345	$0.2135	5.88%	42.44%

Oil goes manic

Crude's surge was the biggest ever in dollar terms and the biggest gain ever on a percentage basis in the absence of a supply disruption, CNBC's Bertha Combs reported.

The big jump was partly the result of a new retreat for the dollar. That decline began Thursday when Jean Trichet, the president of the European Central Bank, said the bank may raise rates in Europe to contain inflation.

There were three other factors in the price gain:

• A Morgan Stanley report predicted crude would hit $150 within a month.

• Israel's transportation minister said that an attack on Iran was "unavoidable" after sanctions to prevent Tehran from developing its nuclear capability had failed.

• The panic buying that Stephen Shork cited. Many oil bears were betting crude would fall under $120 a barrel and were forced to cover on Trichet's remarks, Shork said. That caused many speculators to pile into crude.

Oil at $150 a barrel "is not unrealistic," Gerrit Zambo, an oil trader for BayernLB in Munich, Germany, told Bloomberg News. "Another $15 on top of the record could be the matter of a week. It's mainly driven by financial players as the euro gets stronger again."

But the speculative bubble in oil that's building guarantees that a blowoff is coming. The question is when. Yes, there's burgeoning demand in China, India and elsewhere, but crude is now so high that consumers around the globe are starting to cut back their consumption.

At some point, a speculator will look in vain for someone willing to pay more for crude. When that happens, the price will come down in a hurry. Just ask anyone who speculated in gold or silver in 1980.

• Talk back: Should oil drilling be expanded in the U.S.?

Crude had fallen 9.5% through Wednesday from its May 22 intraday high on increasing signs that higher prices are forcing consumers to change driving habits. Then, the bulls crushed the oil bears.

The gains this year will probably generate new discussions about allowing drilling in Alaska and elsewhere in the United States. "It's insanity" that there is little discussion about drilling off the U.S. coast, Mark Travis of Intrepid Capital Funds told CNBC. "We can keep sending money to (Venezuelan President Hugo) Chavez if we want, but I prefer to drill in my backyard."

Joblessness jumps, and it's not all teens

Many analysts said the unemployment jump was sparked by an influx of teenagers into the work force this summer. The number of teens entering the job market outweighed the available jobs last month.

But teens were only a smart part of the unemployment increase, wrote Philippa Dunne and Doug Henwood of the Liscio Report in a note to clients. The report studies the economy mostly for government clients. Teens represent less than 5% of the work force and contributed only two tenths of a point of the total increase in the unemployment rate, they said.

Construction, manufacturing, retail and temporary job sectors were hit the hardest last month, but health care and government saw job gains.

The economy lost a revised 28,000 jobs, up from a previously reported 20,000, in April.

"More payroll losses are in store in coming months," Carl Riccadonna, an economist at Deutsche Bank Securities, told Bloomberg News. "It corroborates fears of a consumer slowdown or a recession. That's a major concern right now."

"The job market is continuing to erode," Moody's economist Mark Zandi told CNBC. "This job market is still very weak. There is no indication that it is starting to turn."

Lehman to get $5 billion in capital?

Lehman Bros. has been the subject of much debate this week, as the financial-services company has been walloped by talk that it is in financial trouble. The stock plunged earlier this week after reports and rumors suggested that the company needs to raise capital and that it tapped the Federal Reserve's discount window.

Lehman denied the latter, but Bloomberg News Friday reported that Lehman is about to receive a $5 billion capital infusion from an overseas investor and possibly a U.S. pension fund.

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"Their intention is to de-lever their balance sheet, and they've taken some highly publicized measures in order to do that," David Goldman, a senior portfolio strategist at Asteri Capital, told Bloomberg earlier this week. "I have no doubt they'll succeed."

Lehman shares fell 4.6% to $32.29 on the day.

Lehman raised $4 billion in April. Financial-services companies around the world have raised approximately $282.9 billion since the beginning of the year to help offset losses from bad bets on the mortgage market, Bloomberg said.

National City still risky

Midwestern bank National City (NCC, news, msgs) is under scrutiny by federal regulators, The Wall Street Journal reported Friday.

National City's banking unit is being closely watched by the Office of the Comptroller of the Currency after the bank entered into a memorandum of understanding with the office in the past month or so, the report said.

National City was hit hard by the subprime-mortgage fallout, but investors thought the worst was over for the Cleveland company after it raised $7 billion in capital from outside investors in April.

The stock has lost 85% in the past year; shares fell 7.5% Friday to $4.95.

Fed approves BofA deal to buy Countrywide

Bank of America (BAC, news, msgs) got the green light from the Federal Reserve to go forward with its purchase of troubled mortgage lender Countrywide Financial (CFC, news, msgs).

"Mortgages continue to be a key consumer product for Bank of America, serving as a driver for adding new customers and deepening relationships with existing ones," Bank of America CEO Ken Lewis said in a statement Friday.

The Charlotte, N.C., company announced in January it would buy Countrywide for $4 billion.

At least one analyst wasn't optimistic about the deal. "If Ken Lewis pulls the trigger on Countrywide, he's going to lose his job," said Christopher Whalen of Institutional Risk Analytics, speaking to Bloomberg News. "It's so early in the cycle of this housing downturn, you almost know that they are going to go wrong."

Wall Street appeared to share Whalen's skepticism. Bank of America was down 4.6% to $30.50.

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

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.800%	1.810%	-0.010	-2.70%	-42.68%
5-year Treasury note yield	3.197%	3.298%	-0.101	-6.16%	-7.47%
10-year Treasury note yield	3.938%	4.025%	-0.087	-2.67%	-2.40%
30-year Treasury bond yield	4.650%	4.730%	-0.080	-1.21%	4.28%
Currencies
U.S. Dollar Index	72.430	73.075	-0.645	-0.72%	-5.56%
British pound in dollars	$1.9716	$1.9577	0.0139	-0.59%	-0.89%
Dollar in British pounds	£0.5072	£0.5108	-0.0036	0.59%	0.90%
Euro in dollars	$1.5788	$1.5588	0.0199	1.45%	8.02%
Dollar in euros	€ 0.6334	€ 0.6415	-0.0081	-1.47%	-7.42%
Dollar in yen	104.89	105.92	-1.03	-1.45%	-6.22%
Canadian dollar in U.S. dollars	$0.981	$0.983	-$0.0018	-2.55%	-1.17%
U.S. dollar in Canadian dollars	$1.020	$1.017	$0.0026	2.63%	1.18%
Commodities
Gold	$899.00	$882.10	$23.50	1.26%	7.28%
Copper	$3.6230	$3.5430	$0.08	0.46%	19.14%
Silver	$17.4300	$17.1700	$0.26	3.09%	16.82%
Corn	$6.5075	$6.4325	$0.08	8.60%	42.86%
Crude oil (NYMEX) (per barrel)	$138.54	$127.79	$10.75	8.47%	44.34%