Oil tops $145, casts pall on markets

By Charley Blaine and Elizabeth Strott

Crude oil closed above $145 a barrel for the first time Thursday and may hit $150 a barrel next week.

That would be bad news for stocks. Investors have seen markets tumble into bear market territory this year as crude has jumped more than 50%. A difficult earnings season starts next week.

Crude closed in New York at $145.23 a barrel, up $1.66, or 1.2%, from Wednesday. Earlier Thursday, crude hit an all-time high of $145.85. AAA's Fuel Gauge Survey showed the national average retail price of gasoline at $4.098 a gallon, up slightly from Wednesday and up 39% from a year ago.

The jump came after the stock market closed for the July Fourth weekend. Stock and bond markets will be closed on Friday. Electronic trading in energy futures, however, will continue on Friday.

The Dow Jones industrials finished with a 73-point gain, or 0.7%, to 11,289. The Standard & Poor's 500 Index was up 1 point, or 0.1%, to 1,263.

The Nasdaq Composite Index fell 6 points to 2,245, in large part because of a 31% drop in shares of graphics chip maker Nvidia (NVDA, news, msgs). Late Wednesday, the company cut its second-quarter earnings guidance.

General Motors (GM, news, msgs) shares finished up 1.4% to $10.12. The shares had been up as much as 4.4% but faded in the last hour of trading. The stock had fallen under $10 a share Wednesday for the first time since 1954 after a Merrill Lynch analyst suggested the automaker might have to seek bankruptcy protection unless sales rebound strongly.

The GM news was one of the biggest reasons for the Dow’s 167-point fall on Wednesday. GM shares fell 12.4% on the week and are off 59% on the year, the worst performance among the 30 Dow stocks this year.

The China factor drives crude higher

Crude jumped on signs that global demand, particularly from China, may strain supplies.

China National Petroleum said June 28 that PetroChina may import record volumes of petroleum products this year to meet demand needed for reconstruction after an earthquake in May, and to prepare for the Olympics.

Heating oil futures, a proxy for distillate fuels including diesel, rose to a record $4.106 Thursday, up 3.5 cents from Wednesday and up 55% this year.

Natural gas was up 1.4% to $13.577 and is up 81% this year.

"There's a kind of expectation in the market that there will be strong ongoing demand for distillate fuel," said Tim Evans, an energy analyst for Citi Futures Perspective in New York. "We had the Chinese earthquake, and we've got the Olympics coming up."

In fact, the close of the Olympics may be the tipping point for the market, energy analyst John Kilduff told CNBC Thursday afternoon. The assumption is that China wants nothing to go wrong with the Olympics, which run from Aug. 8 to Aug. 24.

But after Aug. 24, Kilduff said, there's speculation China will cut subsidies, forcing consumers to pay higher prices for all energy fuels. That will cut consumption and could break oil prices.

Energy shares were mostly higher on the news. ExxonMobil (XOM, news, msgs) was up 1% to $88.27, and Chevron (CVX, news, msgs) was up 1.2% to $98.63. But Schlumberger (SLB, news, msgs) was down 1.4% to $101.88

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$145.29	$143.57	$1.72	3.78%	51.38%
Heating oil (per gallon)	$4.1060	$4.0715	$0.0345	5.20%	54.98%
Natural gas (per million BTU)	$13.5770	$13.3890	$0.1880	1.68%	81.44%
Unleaded gasoline (per gallon)	$3.5710	$3.5494	$0.0216	1.98%	43.37%

Earnings season could generate volatility

Earnings season kicks off Tuesday when aluminum giant Alcoa (AA, news, msgs) reports after the close.

The company should offer a sense of whether the global economy is slowing down as oil prices rise.

General Electric's (GE, news, msgs) report on July 11 will be the most closely watched. Its first-quarter earnings miss on April 11 dropped the Dow 256 points, and the company's stock has performed badly ever since. GE was up 1.5% on Thursday to $26.91.

Overall, the earnings season is likely to be weak.

Thomson Reuters predicted Thursday that second-quarter profits among S&P 500 companies would fall 12.4% from a year ago -- potentially a fourth consecutive quarter of negative profit growth. The last time that happened was the second quarter of 2001 through the first quarter of 2002.

Financial companies are expected to report the worst results, with profits falling 66% from a year ago. Thomson sees energy leading in earnings growth, with profits rising 28% from a year ago, followed by technology companies who profits should grow 17%.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	11,288.54	11,346.51	-0.51%	-14.90%
S&P 500	1,262.90	1,278.38	-1.21%	-13.99%
Nasdaq Composite	2,245.38	2,315.63	-3.03%	-15.34%
Russell 2000	665.78	698.14	-4.64%	-13.09%
Crude oil per barrel	$145.29	$140.21	3.62%	51.38%
10-yr. Treasury yield	3.97%	3.99%	-0.43%	-1.54%
Gold per troy ounce	$933.60	$931.30	0.25%	11.41%

Jobs report helps stocks

It was a day of thin, volatile trading. The market opened lower on oil news and the decision of the European Central Bank to raise its key rate to 4.25% from 4%.

But the Labor Department's monthly payrolls report wasn't as horrible as feared, which gave stock a boost. The Dow, in fact, moved from a loss of 58 points to a gain of 122 points before falling back at the close.

Still, the Dow finished the day down 20.3% from its Oct. 9 closing high; a 20% loss is the popular definition of a bear market. The Nasdaq Composite also ended the day in bear market territory; it's down 20.8% from its high on Oct. 31.

The S&P 500 finished the day down 19.3% from its Oct. 9 high.

For the week, the Dow was down 0.5%, its third weekly loss in a row, and is off 14.9% on the year. The S&P 500 and Nasdaq saw their fourth weekly declines in a row.

The S&P 500 was down 1.2% for the week and 14% for the year. The Nasdaq fell 2% this week and is off 15.3% for the year.

While 22 Dow stocks were higher on Thursday, led by United Technologies (UTX, news, msgs) and Alcoa, only 246 S&P stocks were high, along with 45 Nasdaq-100 ($NDX.X) stocks. The Nasdaq-100 was basically unchanged at 1,816.

Amgen (AMGN, news, msgs) was the Nasdaq-100 leader and third-best S&P 500 performer, up 4.1% to $50.84. Nvidia was the biggest drag on both the S&P 500 and the Nasdaq-100.

Yahoo (YHOO, news, msgs) was up 2.3% to $21.35, after The Wall Street Journal reported the company was discussing a possible partnership with Time Warner (TWX, news, msgs). Time Warner would fold AOL into Yahoo and take a stake in the venture, The Journal said. Yahoo shares have slumped sharply since Microsoft (MSFT, news, msgs) walked away from its takeover bid in May. (Microsoft is the publisher of MSN Money.)

Employers cut 62,000 jobs

Employers cut payrolls by 62,000 in June, the sixth straight month of nationwide job losses, underscoring the economy's fragile state. The unemployment rate held steady at 5.5%.

The Labor Department report showed continued caution on the part of employers, who are chafing under high energy prices and are uncertain about how long the economy will be stuck in a sluggish mode, reflecting fallout from housing, credit and financial troubles.

Heavy job losses in construction, manufacturing and financial services, along with cutbacks in retailing, eclipsed job gains in education and health services, leisure and hospitality, and government.

The report, however weak, was largely on target with economists' forecasts. They had been expecting employers to reduce payrolls by around 60,000 jobs in June and for the unemployment rate to slip a notch to 5.4%.

The jobless rate spiked to 5.5% in May. That marked the biggest month-over-month increase in two decades and left the rate at its highest since October 2004.

Job losses in both April and May turned out to be considerably deeper than had been thought. Payrolls dropped by 67,000 in April, versus the 28,000 previously reported. And, losses in May came to 62,000, rather than the 49,000 initially estimated.

The big picture, according to Thomson Financial:

• The economy has lost all but 15,000 of the 453,000 jobs created in the second half of 2007.

• Manufacturing employment is at its lowest level in 58 years.

• Construction employment is down 6.8% from its peak less than two years ago.

Nvidia cut guidance; stock tanks

Shares of Nvidia (NVDA, news, msgs) lost nearly a third of their value Thursday after the graphics chip maker cut its second-quarter revenue guidance.

The stock closed down 30.7% to $12.49, after hitting a nearly two-year low of $12.40 just after the opening bell.

The company blamed end-market weakness around the world for the cut, and now expects sales of $875 million to $950 million for the period, below the $1.1 billion analysts expect.

UBS analyst Uche Orji now expects sales of $915 million for the period, and lowered his price target to $19.50 from $22, but kept a "Neutral" rating.

The company faces increased competition, especially from Advanced Micro Devices, Orji said in a note to clients.

A gambling buyout fizzles

Another big private equity crashed Thursday when Penn National Gaming (PENN, news, msgs) and funds managed by Fortress Investment Group and Centerbridge Partners agreed to terminate the proposed $6.1 billion acquisition of the casino company.

Penn National also gave revenue estimates below Wall Street's expectations.

The fate of the 13-month old takeover bid has been in question for months, with the stock trading far below the $67 buyout price. Shares started the year at $60, fell to $45 and tumbled from there in the past three weeks. The stock was up 3.7% to $29.66 on the day.

Penn National will get $1.48 billion for the deal falling through -- $225 million in cash and $1.25 billion from the preferred shares by Fortress, Centerbridge and their lenders, Wachovia (WB, news, msgs) and Deutsche Bank (DB, news, msgs).

Penn National said it became apparent that a deal wouldn't close "without significant and lengthy litigation which is inherently unpredictable," adding that a "renegotiated, reduced purchase price was not a viable option."

GM may sell high-mileage Chevy Beat in U.S.

Yes, General Motors had a crummy week. But the company isn't acting as thought it's going anyway. Indeed, GM, which popularized the 7,800-pound Hummer, may begin selling a mini-car more than a foot shorter than anything else it markets in the U.S. to win back buyers deterred by record fuel prices.

GM may bring the production version of the Chevrolet Beat to the U.S., people familiar with the plan told Bloomberg News. The car, which so far has beenreserved for markets such as Asia and Latin America, gets as much as 40 miles a gallon, a fuel efficiency topped in the U.S. only by hybrids.

The possible American introduction of the Beat would be one step in a fleet downsizing and shift away from fossil fuel-based vehicles that sources said is already under way at GM. Resigned to $4-plus-a-gallon gasoline and stricter pollution rules, the largest U.S. automaker has recognized that its response must go beyond the mothballing of large truck plants, they said.

"This is a very big change for GM," said John Wolkonowicz, an analyst at Global Insight Inc. in Lexington, Massachusetts. "They have no choice. There's never been as rapid a shift in consumer demand in the history of the auto industry."

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

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.810%	1.790%	0.020	6.16%	-42.36%
5-year Treasury note yield	3.270%	3.293%	-0.023	-2.13%	-5.35%
10-year Treasury note yield	3.973%	3.959%	0.014	-0.15%	-1.54%
30-year Treasury bond yield	4.531%	4.503%	0.028	0.00%	1.61%
Currencies
U.S. Dollar Index	73.075	72.335	0.740	0.38%	-4.72%
British pound in dollars	$1.9837	$1.9944	-0.0107	-0.48%	-0.28%
Dollar in British pounds	£0.5041	£0.5014	0.0027	0.48%	0.28%
Euro in dollars	$1.5704	$1.5895	-0.0191	-0.30%	7.44%
Dollar in euros	€ 0.6368	€ 0.6291	0.0077	0.30%	-6.93%
Dollar in yen	106.66	105.81	0.85	0.44%	-4.64%
Canadian dollar in U.S. dollars	$0.980	$0.989	-$0.0090	0.05%	-1.26%
U.S. dollar in Canadian dollars	$1.021	$1.011	$0.0104	0.01%	1.33%
Commodities
Gold	$933.60	$946.50	-$12.90	0.57%	11.41%
Copper	$3.9490	$4.0635	-$0.11	1.71%	29.86%
Silver	$18.3700	$18.4250	-$0.05	4.91%	23.12%
Corn	$7.4600	$7.4875	-$0.03	2.93%	63.78%
Crude oil (NYMEX) (per barrel)	$145.29	$143.57	$1.72	3.78%	51.38%