Oil Pressure for Stocks

The dollar eases while oil jumps, as investors await nonfarm payrolls report Friday.
By Robert Holmes ,

Updated from 4:09 p.m. EST

Stocks stumbled Thursday after a major rally Wednesday, as oil prices spiked back up near record highs and investors looked ahead to Friday's critical nonfarm payrolls report.

The

Dow Jones Industrial Average

closed 37.17 points, or 0.35%, lower at 10,503.76, the

S&P 500

lost 0.82 point, or 0.07%, to 1180.59, while the

Nasdaq

was off 6.44 points, or 0.32%, to 1999.23. The 10-year Treasury note was up 15/32 in price with the yield down to 4.49%, a two-week low, while the dollar eased against the yen and euro.

"It's not just a spike in oil," said Al Goldman, chief market strategist with A.G. Edwards. "After a party like yesterday, the market needs a little rest period," he added, referring to Wednesday's big market gains.

Trading volume on the

New York Stock Exchange

was 2.17 billion shares, with advancers beating decliners by a 5-to-3 ratio. Volume on the Nasdaq was 1.68 billion shares, with decliners matching advancers.

Oil, whose near-$2 plunge intraday Wednesday helped spark a 135-point rally in the Dow, finished up $1.41 to $55.40 a barrel. Oil jumped after Goldman Sachs said it is predicting a "super spike" period, believing oil prices could reach $105 per barrel, up from the previous $80-per-barrel estimate. The record close is $56.72, set two weeks ago.

"I think it's a little premature to make a prediction like that," said Edgar Peters, chief investment officer with Pan Agora, representing what might be considered a common view. "I don't believe there is enough information to make a judgment like that."

"Everyone is bullish on the price of oil, and, classically on a commodity, what people anticipate never happens," Goldman said.

Strong sectors Thursday included energy, materials and homebuilding. Weaker sectors included health care and drugs, semiconductors, transportation and biotech.

A slew of economic data was released Thursday. First, the Labor Department said that jobless claims increased 20,000 to 350,000 for the week ended March 26. The consensus had been for a decline to 320,000. The four-week moving average increased 8,500 to 336,000.

Also, the Commerce Department said that personal income rose 0.3% in February, less than the 0.4% increase expected by economists. Personal spending rose 0.5%, also slightly less than expected. On the manufacturing front, factory goods rose 0.2% in February, lower than economists' expectations of a 0.4% rise. January orders were revised from an initial estimate of a 0.2% increase to unchanged. Elsewhere, durable-goods orders for February were revised up to 0.5% from the initial 0.3% rise, while non-durable-goods orders fell 0.2% in the month.

Finally, the Chicago purchasing managers index for March surged to 69.2%, much higher than the forecast of 60.4%. Economists had expected the index to fall because of the latest increase in oil prices.

The employment -- or nonfarm payrolls -- report will cap a crowded week of economic releases on Friday. Economists expect a gain of 220,000 jobs, after a larger-than-expected increase in January.

Among Thursday's major movers were

Biogen

(BIIB) - Get Report

and

Elan

(ELN)

, which both plunged after announcing that a third patient taking their multiple sclerosis drug Tysabri had contracted a rare nervous-system disorder.

Elan was downgraded by the brokerages Morgan Stanley, Piper Jaffray and Deutsche Securities after the announcement. Shares of Elan plummeted $3.74, or 53.6%, to close at $3.24. Biogen was down $3.84, or 10%, to $34.51.

The battle for

MCI

(MCIP)

flared again on Thursday as

Qwest

(Q)

made a new bid for the long-distance phone company, raising its offer to $27.50 a share in cash and stock, or $8.9 billion. Qwest had been rejected on Tuesday in favor of an improved, but lesser, offer from

Verizon

(VZ) - Get Report

.

According to a filing with the

Securities and Exchange Commission

, Qwest's new bid for MCI includes $13.50 a share in cash and $14 in stock. MCI gained 45 cents, or 1.8%, to $24.90; Qwest fell 7 cents, or 1.9%, to $3.70; also, Verizon was up 7 cents, or 0.2%, to close at $35.50

Western Digital

(WDC) - Get Report

surged after the hard-drive maker put third-quarter earnings at 29 cents to 31 cents a share on revenue of $900 million to $915 million. Analysts had expected 18 cents a share on revenue of $901 million. Shares added $1.58, or 14.2%, to $12.75.

Late Wednesday, Standard & Poor's cut its rating of

American International Group

(AIG) - Get Report

to AA+ from AAA+, after AIG admitted to a broad range of improper accounting that could slash its net worth by $1.77 billion. AIG said Wednesday that a much-scrutinized 2000 transaction between it and

Berkshire Hathaway's

(BRKA)

General Re unit doesn't qualify as insurance and must be reclassified. Shares of AIG fell $1.75, or 3.1%, to finish at $55.41.

Continental

(CAL) - Get Report

said its pilots ratified a new contract designed to save the airline $213 million a year. The airline's 100 flight dispatchers also ratified a new contract designed to save Continental $736,000 annually, the Transport Workers Union, which represents the dispatchers, confirmed Wednesday. Continental rose 15 cents, or 1.3%, to $12.04.

Freddie Mac

(FRE)

reported 2004 annual earnings of $2.8 billion, or $3.78 a share, compared with $4.8 billion, or $6.68 a share, in 2003. Analysts had expected earnings at $6.87 a share for the year, according to Thomson First Call. The second-largest U.S. home-financing company blamed the drop on losses related to derivatives. Freddie Mac slipped 70 cents, or 1.1%, to end at $63.20.

Forest Labs

(FRX)

was lower after announcing that the Food and Drug Administration had determined that the company's antidepressant Lexapro was not approvable for treating social anxiety disorder. The FDA's rejection cites the reliability of European trial data. Shares dipped 14 cents, or 0.4%, to $36.91.

Veritas Software

(VRTS) - Get Report

said on Thursday that it will miss the extended deadline for filing its 2004 annual report to allow its auditor more time to assess internal controls. Veritas said it will file its report by April 11. The storage software maker, which will be acquired by

Symantec

(SYMC) - Get Report

, lost 82 cents, or 3.4%, to close at $23.22.

Ruby Tuesday

(RI)

reported fiscal third-quarter earnings of $27.6 million, or 42 cents a share, down from $32.4 million, or 48 cents a share, a year ago. Revenue for the quarter was $289 million, compared with $271 million a year ago. Analysts were expecting 39 cents a share on revenue of $296 million, based on a Thomson First Call survey. The company also lowered fourth-quarter guidance. Shares fell $1.09, or 4.3%, to $24.29.

Overseas markets were mostly higher, with London's FTSE 100 finishing 0.1% down at 4894 and Germany's Xetra DAX unchanged at 4348. In Asia, Japan's Nikkei rose 0.9% overnight to 11,669, while Hong Kong's Hang Seng added 0.9% to 13,517.

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