Oil Prices Sink Stocks

The averages slide in to the close. The Dow dives 85 points.
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Updated from 4:12 p.m. EDT

Stocks fell hard late in the session and finished lower Wednesday as oil closed its day at a new record high.

The

Dow Jones Industrial Average

lost 84.71 points, or 0.81%, to 10,434.87, and the

S&P 500

fell 8 points, or 0.66%, at 1209.59. The

Nasdaq Composite

was down 8.34 points, or 0.39%, to 2128.91. The 10-year Treasury was up 3/32 in price to yield 4.17%, while the dollar fell against the yen and euro.

"The story again today was record oil prices," said Dave Briggs, head of equity trading with Federated. "The end of August has been murderous six of the last eight years. It seems every time the market is strong in June and July, we get killed in August. We finished now at multiple day lows."

Oil spiked up $1.61 to close at $67.32 a barrel in Nymex floor trading, a record high. Earlier, the Energy Department released its weekly inventory report, which showed that crude stocks rose 1.8 million barrels last week. Distillate inventories also rose, adding 1.4 million barrels, while gasoline inventories fell 3.2 million barrels.

Also bolstering the price of crude was word that another storm is taking shape in the Caribbean that could eventually threaten drilling platforms in the Gulf of Mexico.

"We have a scare in oil prices with the impending storm," said Paul Nolte, director of investments with Hinsdale Associates. "Without knowing the impact, oil has crossed another threshold. Everyone is a little concerned about hitting $70."

The Dow was dragged lower by a 2.7% loss in

Caterpillar

(CAT) - Get Report

with another 13 components posting losses of 1% or more.

About 1 billion shares changed hands on the

New York Stock Exchange

, with decliners beating advancers by a 6-to-5 margin. Trading volume on the Nasdaq was also around 1 billion shares, with decliners outpacing advancers 8 to 7.

As of Wednesday's close, the Dow has lost 1.9% for the month of August. The S&P 500 is down 2% while the Nasdaq is off 2.6%.

The market opened down after the Commerce Department said durable goods orders declined 4.9% in July. Economists expected a 1% drop in new orders for durables after a 2.8% rise in June.

Separately, the Commerce Department said new-home sales rose 6.5% to an annual rate of 1.41 million units in July. The report was expected to show a 3.1% drop in new-home sales to an annual rate of 1.33 million units, after a rate of 1.37 million in June.

Stronger sectors Wednesday included energy, technology, retail, homebuilding and transportation. Materials and airlines were among lagging sectors.

In the company's first quarterly report since going public,

Baidu.com

(BIDU) - Get Report

posted second-quarter earnings of $1.5 million, or 5 cents per American depositary share. Second-quarter revenue was $8.4 million. Baidu.com fell $4.20, or 5.1%, to $77.80.

Meanwhile,

Google

(GOOG) - Get Report

unveiled its new Google Talk instant-messaging service on Wednesday. The service enables users to send messages and make voice calls over personal computers, competing with

Time Warner's

(TWX)

America Online and

Yahoo!'s

(YHOO)

messaging service. Google was higher by $2.99, or 1.1%, to close at $282.57.

Among earnings,

Dollar Tree

(DLTR) - Get Report

posted a second-quarter profit of $27.3 million, or 25 cents a share, down from $29.6 million, or 26 cents a share, last year. Sales rose to $769 million from $704.2 million a year ago, while same-stores sales fell 1.5%. Results were mostly in line with analysts' expectations, according to Thomson First Call. The retailer blamed rising gas costs for deterring customers from making trips to its stores. The stock lost 5 cents, or 0.2%, to $23.03.

"Oil is the primary factor, as you can see in retail figures," says Larry Wachtel, senior market analyst with Wachovia Securities. "It's having a big psychological impact."

Coach

(COH)

said it now expects fiscal first-quarter sales and earnings of at least $445 million and 25 cents a share, respectively. Analysts are forecasting a profit of 24 cents and sales of $442.7 million, according to Thomson First Call. The handbag maker said first-quarter earnings should beat analysts' estimates, as sales have been strong throughout the summer and into the start of the fall season. Coach added $1.35, or 4.1%, to $33.99.

Late Tuesday,

Applebee's

(APPB)

said August same-store sales rose 1.3% from a year ago, rising 2.2% in franchise locations and falling 1.5% in company shops. The company said it now expects same-store sales in company-owned restaurants to fall about 1% for the rest of the year, while comp sales in franchise stores should rise around 1.5%.

Applebee's also said it now expects to make 32 cents to 35 cents a share for the third quarter and between $1.33 and $1.40 a share for the year, below the Thomson First Call estimates. Piper Jaffray downgraded the stock to market perform from outperform on the lower guidance. Shares of Applebee's lost $1.67, or 7%, to $22.37.

After the market closes, earnings reports are expected from

Intuit

(INTU) - Get Report

,

TiVo

(TIVO) - Get Report

,

PetsMart

(PETM)

and

Michaels Stores

(MIK) - Get Report

.

Corinthian Colleges

(COCO)

announced a revenue restatement for fiscal year 2001 through the first three quarters of 2005, resulting in decreased net earnings. The restatement, due to a change in the way the company recognizes revenue from specific diploma programs, will lower net earnings for 2002 by 4 cents, 2003 by 4 cents, 2004 by 6 cents, the first quarter of 2005 by 4 cents and the third quarter of 2005 by a penny. Corinthian fell 22 cents, or 1.7%, to $12.69.

Among the day's ratings moves, brokerage Merrill Lynch upgraded

Myriad Genetics

(MYGN) - Get Report

to buy from neutral. The firm cited strong predictive medicine business growth for Myriad and said it expects a price increase of 7% in 2006. Myriad's stock rose 12 cents, or 0.7%, to $18.27.

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Overseas markets were mostly lower, with London's FTSE 100 down 0.5% to 5275 and Germany's Xetra DAX unchanged at 4916. In Asia, Japan's Nikkei rose 0.2% overnight to 12,502, while Hong Kong's Hang Seng lost 0.7% to 14,873.

To view Gregg Greenberg's video take on today's market, click here

.