"Super spike" was the phrase on everyone's lips Thursday -- but it had nothing to do with stocks, which ended a disappointing quarter with a lackluster session. As was the case for most of the first quarter, the big story of the day was oil, which rose sharply after Goldman Sachs put out a report saying crude prices could spike above $100 per barrel.

The

Dow Jones Industrial Average

shed 37.17 points, or 0.35%, to 10,503.76, the

S&P 500

fell 0.82 point, or 0.1%, to 1,180.59, while the

Nasdaq

dropped 6.44 points, or 0.32%, to 1,999.23. For the first three months of 2005, the Dow has fallen 2.4%, the S&P has shed 2.5%, and the Nasdaq has slumped more than 8%, its worst quarter since the third quarter of 2002.

After trading as low as $52.50 intraday Wednesday, crude oil jumped $1.51 to $55.40 after Goldman Sachs predicted oil prices could move above $100. Goldman believes that oil markets may have entered the early stages of a "super spike" period, and it revised its peak price target to $105 from $80; the firm was also kind enough to share which of its favorite energy names would benefit, including

Exxon Mobil

(XOM) - Get Report

, which rose 0.6% but finished well off its session high of $60.32.

The fact that Goldman's call came on the final day of the quarter raised some eyebrows (and conspiracy theories), especially given the recent weakness in crude and related stocks.

Regardless of the validity or timing of Goldman's "spike" prediction, high oil prices are seemingly here to stay. Will oil -- in conjunction with still-strong economic growth -- have enough of an inflationary impact to force the

Federal Reserve

to tighten more aggressively? Or will it cut into growth so much that the Fed steps off the brake? What will the Fed do if inflation goes up and growth slows, i.e., if "stagflation" reappears?

Maybe the picture will be a bit clearer with tomorrow's March employment report, from which economists are expecting nonfarm payrolls of 220,000.

Thursday's data were a mixed batch but weighed toward the weaker-than-expected side, helping the dollar fall while the price of the 10-year Treasury rose 15/32, its yield falling to 4.49%. Personal incomes were disappointing while jobless claims climbed by 20,000 to 350,000, against expectations for a drop. That would seem to confirm forecasts that payroll growth will slow from February's torrid pace.

But at the same time, the Chicago PMI surged to 69.2 in March from 62.7 in February, way above forecasts for a decline to 60.5. Contrary to what the jobless claims numbers suggest, the regional survey's employment index surged to a 21-year high.

It's possible the Chicago PMI is simply a regional phenomenon. But that's unlikely, given the decline in auto sales, notes HFE senior U.S. economist Ian Shepherdson, who notes that a similar survey for the Milwaukee region also surged.

For a better insight of the Fed's thinking on inflation, a 0.3% gain in the February core personal consumption expenditure (PCE) price index came in below forecasts of a 0.4% increase.

On a year-over-year basis, the Fed's favorite inflation indicator sits at 1.6%, which is still comfortably inside the Fed's target range of 1.5% to 2%. But over the last three months, the PCE is trending up at 2% on an annualized basis. Still, that's probably not enough to justify the Fed getting more aggressive in its tightening, at least not yet.

But, of course, the Fed will have March and April economic data in hand before its next rate-setting meeting in May. "If they get firm inflation numbers by then, they may well go to 50 basis points," says Wes Beal, chief U.S. economist at IdeaGlobal.

But perhaps the bond market has it right. The yield curve keeps flattening, which means the market is anticipating a slowdown in growth.

How much of a slowdown could well depend on the dollar, says Paul Kasriel, director of research at Northern Trust. "Greenspan has got to be crossing his fingers that the dollar does not fall further," he says.

Kasriel's doomsday scenario goes like this: Asian central banks have kept on buying Treasuries, not attracted by U.S. yields, but simply to support the dollar and keep their countries' export industries competitive. At some point, they'll have to slow the process. That would prompt a dollar selloff and a spike in interest rates in a slowing economic environment. "Greenspan does not want a recession the year he leaves

2006, so while rates are still low, the Fed doesn't want to shock the system," Kasriel says. "But the dollar would force them to."

Winners and Losers

Among the 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 $3.24. Biogen fell $3.84, or 10.01%, 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 rose 45 cents, or 1.8%, to $24.90; Qwest fell 7 cents, or 1.9%, to $3.70; Verizon rose 7 cents, or 0.2%, to $35.50.

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

American International Group

(AIG) - Get Report

to AA-plus 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

(BKRA)

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

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

your feedback.