Dow falls 110 as oil jumps to $116

By Charley Blaine and Elizabeth Strott

A triple whammy of weak consumer spending, higher energy prices and renewed selling of financial stocks hit the stock market hard today.

In addition, traders seemed concerned about the tensions between the United States and Russia over Georgia.

The Dow Jones industrials fell 110 points, or 0.9%, to 11,533 -- the second loss of more than 100 points in two days.

The Standard & Poor's 500 Index was off 4 points, or 0.3%, to 1,286, but its loss was limited by a 3% rise in energy stocks and a 2% rise in materials and metals stocks.

The Nasdaq Composite Index was down 2 points, or 0.1%, to 2,429. The index was supported by gains in Apple (AAPL, news, msgs), up 1.5% to $179.30, and Qualcomm (QCOM, news, msgs), up 2.2% to $55.39.

Crude oil, meanwhile, closed at $116 a barrel, up $2.99 on the day and its biggest gain since July 11. But crude's close was a pullback from an intraday high of $117.46. The rally came after an Energy Department report showing smaller-than-expected domestic supplies of gasoline and crude oil.

Today's weak close sets up a big day on Thursday. The Labor Department will issue its monthly Consumer Price Index report, and several key retailers will report second-quarter earnings, including Wal-Mart Stores (WMT, news, msgs), Nordstrom (JWN, news, msgs) and Kohls (KSS, news, msgs).

The Wall Street estimate for the CPI is 0.3% for the month, with rising food and energy costs the big problem. But the report may suggest some moderation, compared with June's 1.1% jump, in part because crude oil peaked in mid-July and started to fall back.

The stock market hit its low today after President Bush pledged to continue to "rally the free world in defense of a free Georgia." He also said U.S. military personnel would be sent to Georgia to deliver humanitarian aid.

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

By using the military personnel to deliver assistance and dispatching Secretary of State Condoleezza Rice to Tbilisi, Bush signaled that the U.S. is firmly committed to Georgia and to exerting its own influence in the region, said Cliff Kupchan of New York-based Eurasia Group, a political risk consulting firm.

The moves are "a symbolic shot across the bow that 'enough's enough,'" Kupchan said. "It's as much pushback with hardware as the U.S. can, or should, muster at this point."

Financial are weak again

Financial stocks were the market's weak link after Merrill Lynch (MER, news, msgs) downgraded five big financial companies: Lehman Bros. (LEH, news, msgs), Citigroup (C, news, msgs), JPMorgan Chase (JPM, news, msgs), Morgan Stanley (MS, news, msgs) and Goldman Sachs (GS, news, msgs).

Richard Bernstein, Merrill Lynch's chief investment strategist, said investors are still "significantly underestimating" the extent of the credit crisis that erupted a year ago.

And analyst Guy Moszkowski said in a note on the investment houses that conditions for these companies "have deteriorated significantly since July." In a note to clients, he said he expected Citigroup to take write-downs totaling $8.1 billion this quarter.

Lehman was off 4% to $15.57; Citigroup dropped 3.9% to $17.81. JPMorgan fell 2.7% to $36.91, and Goldman Sachs slipped 1.4% to $164.90, and Morgan Stanley fell 5.5% to $40.15.

Merrill Lynch itself was up 2.9% to $25.60. The Amex Securities Broker/Dealer Index ($XBD.X) was off 1.4% to 146. The Philadelphia/KBW Banking Index ($BKX) was off 4.1% to 63.

The Merrill Lynch downgrade followed similar moves on the sector by Deutsche Bank's Mike Mayo and Oppenheimer's Meredith Whitney.

A big problem for the bank index was Bank of America (BAC, news, msgs), which fell 7% to $28.95, in part because the state of West Virginia sued Countrywide Financial, which Bank of America now owns. The suit accuses Countrywide, which had been the nation's largest mortgage lender, of making risky and costly loans to borrowers who couldn't afford the loans. California, Connecticut, Florida and Illinois have filed similar lawsuits against the lender.

Meanwhile, Fannie Mae (FNM, news, msgs) was lower today, a day after limits on short selling on Fannie and sibling Freddie Mac (FRE, news, msgs) and 17 major financial stocks expired. Fannie Mae was off 4.1% to $7.69; Freddie Mac was up 3.4% to $5.55.

The Securities and Exchange Commission instituted the emergency ban in July after a precipitous slide in the shares of Fannie and Freddie, the government-sponsored companies that together hold or guarantee more than $5 trillion in home mortgages -- nearly half the U.S. total. The SEC extended the ban July 29 until Tuesday, saying it would not be extended further.

Not many winners on the day

Only 5 of the 30 Dow stocks finished with gains, led by Alcoa (AA, news, msgs), up 4.2% to $32.25 as metals prices pushed higher. Oil giants Chevron (CVX, news, msgs) and ExxonMobil (XOM, news, msgs) were next with gains of 3.2% to $86.24 and 1.7% to $78.17, respectively.

General Motors (GM, news, msgs) was the worst Dow performer, falling 7.6% to $10.26 after Moody's Investors Service cut its rating on the auto giant's debt to Caa1 from B3. That's junk status and seven levels below investment grade. The downgrade "reflects the challenges the company will face in reestablishing a competitive position in the U.S. automotive market."

Only 175 S&P 500 stocks were higher, along with 41 stocks in the Nasdaq-100 Index ($NDX.X). The index finished up 1 point to 1,942.

Nvidia (NVDA, news, msgs), the computer-graphics chip maker, led both the S&P 500 and the Nasdaq-100 with a 10.8% gain to $12.26 after announcing it would boost a share buyback program by $1 billion.

Liz Claiborne (LIZ, news, msgs) was the laggard among S&P 500 stocks, down 11.6% to $13.18, after posting a second-quarter loss and projecting an annual profit that was lower than the consensus analyst estimate.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$116.00	$113.01	$2.99	-6.51%	20.86%
Heating oil (per gallon)	$3.1317	$3.0781	$0.0536	-8.93%	18.20%
Natural gas (per million BTU)	$8.4560	$8.3300	$0.1260	-7.27%	13.00%
Unleaded gasoline (per gallon)	$2.9323	$2.8432	$0.0891	-3.80%	17.73%

High gas prices rein in consumer spending

Consumers reined in their spending in July, according to this morning's retail sales report from the Commerce Department.

Retail sales fell 0.1% in July, in line with economists' forecasts, but it was the first decline in five months. Excluding autos, retail sales rose 0.4%.

Auto sales were the big drag last month, falling 2.4%; they're down 10.5% on a year-over-year basis. Gas station sales rose 0.8% in July; sales at gas stations have jumped 24.6% over the past year. Furniture stores rose 1%, the biggest gain in 18 months, while sales at restaurants and bars dipped 0.2%.

Sales were revised upward in June, to a 0.3% gain.

Consumer spending makes up about 70% of the economy. Spending has grown every quarter over the past 16 years, and economists expect a 0.6% increase in the third quarter.

Investors also had a Labor Department report on import prices to digest this morning. Import prices rose by 1.7% last month, higher than the 1% increase economists had expected.

Import prices rose 2.6% in June, when gas prices were soaring.

Oil supplies fall

Crude oil pushed higher after oil inventory data showed a drop in supplies.

In its weekly report, the Energy Department said oil supplies fell by 400,000 barrels last week. Gasoline supplies fell by a surprising 6.4 million barrels.

Analysts said refiners produced less gasoline as high gasoline prices slowed domestic demand.

Analysts had forecast an increase of 500,000 barrels of oil last week; gasoline stockpiles were expected to have fallen by 2.2 million barrels.

Macy's cuts forecast

Department-store giant Macy's (M, news, msgs) said quarterly profit fell 1.4% to $73 million, or 17 cents per share, down from $74 million a year ago. Sales fell 3% to $5.7 billion.

Excluding items, Macy's earned 29 cents per share, topping the consensus estimate of 20 cents per share.

The stock managed to rise 1.9% to $20.66, even as the company lowered its full-year earnings outlook. Macy's now expects earnings to come in between $1.70 to $1.85 a share, down from a previous forecast of $1.85 to $2.15.

Housing slump, economy hit Toll Bros., Deere

Toll Bros. (TOL, news, msgs) reported preliminary third-quarter revenue of $796.5 million -- down 34% from the same period a year ago but above Wall Street's estimate of $735 million in quarterly sales. The company will report its official results on Sept. 4.

Signed contracts fell 27%, and Toll's backlog of houses under contract but not sold fell 52% from last year's quarter, to $1.75 billion.

"The consumer's confidence in the housing market is the key to its recovery," CEO Robert Toll said in a statement. "Total cancellations . . . of 195 were the lowest quarterly total in over two years. We believe this reduction in cancellations is a positive sign."

Toll Bros. shares closed up 1% to $20.84 this afternoon.

Heavy-equipment maker Deere (DE, news, msgs) this morning reported lower-than-expected earnings.

Deere earned $575 million, or $1.32 per share, in its third fiscal quarter -- up 7% from the $537 million, or $1.18 per share, from a year earlier. Analysts were looking for earnings of $1.36.

Revenue rose 17% to $7.74 billion, which beat the Street's estimate of $7.23 billion.

But shares fell 3.2% to $67.10, partly because the company forecast a 5% decline in construction sales this year, down from a previous forecast of a 3% drop.

AMAT profit slumps

Chip-equipment maker Applied Materials (AMAT, news, msgs) late Tuesday reported a 65% plunge in fiscal-third-quarter profit, its sixth straight quarter of profit declines. AMAT earned $164.5 million, or 12 cents per share, a big decline from the $473.5 million, or 34 cents per share, the company earned in the same period a year ago. Excluding charges, Applied Materials earned 17 cents per share, topping Wall Street's estimate of 14 cents.

Revenue fell 27% to $1.85 billion, but that number also beat analysts' estimate of $1.83 billion in sales.

Orders fell 11% to $2.28 billion in the quarter from last year, but Applied Materials said orders for the current quarter will rise between 5% and 10% from those results.

Shares rose 4.7% to $19.33.

BOE cautions about slowing economy

The economic picture isn't any prettier in England than it is in the United States.

The Bank of England this morning said it expects the economy to grow by 0.1% in the first quarter of 2009, lower than a previous forecast of 1% growth.

"It may still be summer, but there is a feeling of chill in the economic air," BOE Governor Mervyn King said at a press conference in London. The economy faces a "difficult and painful adjustment," which results in a rise in inflation and slowing growth, King said.

CVS in drugstore deal

CVS Caremark (CVS, news, msgs) late Tuesday said it will acquire Longs Drug Stores (LDG, news, msgs) in a deal worth $2.9 billion.

The buyout values Longs at $71.50 per share, which represents a 32% premium over the stock's closing price Tuesday. Shares of Longs jumped 30.8% to $70.70 today; CVS shares fell 0.1% to $38.03.

"Longs has a significant presence in 10 non-CVS markets that are among the top 100 drugstore markets in the country," CVS Chief Executive Officer Tom Ryan said in a statement. "Longs' store network in these regions is excellent and is one that would take a decade or more for us to replicate through organic growth."

Best Buy to sell iPhones

Lovers of Apple's iPhone now have another place to find them.

Electronics retailer Best Buy (BBY, news, msgs) will become the first retail chain in the U.S. to sell the phones outside of Apple AT&T (T, news, msgs) stores.

"A couple of years ago, we didn't even sell smart phones," Shawn Score, president of Best Buy Mobile, told Bloomberg News. "We just weren't in a position to even be asking. I think we proved to them that we could be a really good outlet on this product."

The phones will hit the retailer's shelves on Sept. 7.

Best Buy jumped 1.1% to $45.38.

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

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.815%	1.825%	-0.010	11.01%	-42.20%
5-year Treasury note yield	3.208%	3.164%	0.044	-1.78%	-7.15%
10-year Treasury note yield	3.947%	3.918%	0.029	-0.80%	-2.18%
30-year Treasury bond yield	4.576%	4.552%	0.024	-0.59%	2.62%
Currencies
U.S. Dollar Index	76.385	76.320	0.065	4.04%	-0.40%
British pound in dollars	$1.8702	$1.8968	-0.0266	-5.69%	-5.98%
Dollar in British pounds	£0.5347	£0.5272	0.0075	6.03%	6.37%
Euro in dollars	$1.4921	$1.4923	-0.0002	-4.36%	2.09%
Dollar in euros	€ 0.6702	€ 0.6701	0.0001	4.56%	-2.05%
Dollar in yen	109.55	109.28	0.27	1.55%	-2.06%
Canadian dollar in U.S. dollars	$0.942	$0.939	$0.0022	-3.66%	-5.17%
U.S. dollar in Canadian dollars	$1.063	$1.064	-$0.0018	3.87%	5.45%
Commodities
Gold	$831.50	$814.60	$16.90	-9.88%	-0.78%
Copper	$3.3520	$3.2275	$0.12	-8.45%	10.23%
Silver	$14.9780	$14.6140	$0.36	-15.81%	0.39%
Corn	$5.3900	$5.3900	$0.30	-8.26%	18.33%
Crude oil (NYMEX) (per barrel)	$116.00	$113.01	$2.99	-6.51%	20.86%