Stocks Sell Off as Oil Prices Spike

NEW YORK ( TheStreet) -- Stocks got off to a rough start in March, selling off Tuesday as oil prices crept back to $100 a barrel, despite Federal Reserve Chairman Ben Bernanke's statement that the impact of the recent spike is likely to be only temporary.

The Dow Jones Industrial Average shed 168 points, or 1.4%, to close at 12,057. The S&P 500 finished lower by 21 points, or 1.6%, at 1306, and the Nasdaq Composite shed 45 points, or 1.6% to close at 2737.

Caterpillar ( CAT), Alcoa ( AA) and General Electric ( GE) led the Dow's decline, while Coca Cola ( KO), Cisco ( CSCO) and Wal-Mart ( WMT) were leaders among the blue-chips.

Oil prices surged Tuesday, as Middle East tensions showed no signs of abating, once again sparking fears that the U.S. economy will stumble. Although international leaders have stepped up pressure against longtime Libyan leader Moammar Gadhafi , with the U.S. government freezing $30 billion in Libyan assets, the fighting continued to rage Tuesday. Forces loyal to the dictator still hold Tripoli and nearby cities but have lost control of the eastern half of the country, the Journalreported.

In Iran, security forces clashed with protesters calling for the release of two opposition leaders in Tehran . Crude oil for April delivery rose $2.66 to settle at $99.63 a barrel, its highest close since September 2008.

In his semi-annual monetary policy report to the Senate Banking Committee, Fed Chairman Ben Bernanke reiterated his expectations for modest inflation in the near-term but hastened to assure legislators that the central bank was keeping a close eye on commodity prices as the conflict in the Middle East continues.

"The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation -- an outlook consistent with the projections of both FOMC participants and most private forecasters," Bernanke testified. "That said, sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored."

Bernanke added, "We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability."
Federal Reserve Chairman Ben Bernanke

Quincy Krosby, market strategist at Prudential Financial, said Bernanke is clearly sticking to his script in his insistence that higher commodity prices aren't fueling inflationary pressures.

"When you look at it from the standpoint of the market, the nervousness stems from the fact that you are seeing input costs rising. During the last earnings season, the guidance was very much calling attention to higher input costs and the effect on margins, so the fact that Bernanke is denying that belies the fact that CEOs are talking about it," she said.

Krosby said Bernanke is looking at payroll numbers since it's crucial to his exit strategy that he see wages rising on the back of higher employment numbers. On Friday, the government will release its February jobs report. Economists are anticipating job growth of 183,000, according to Briefing.com.

In economic news Tuesday, the Institute for Supply Management said U.S. manufacturing expanded at its fastest pace since May 2004 in February . The ISM's Purchasing Managers' index rose to a reading of 61.4, from 60.8, previously. According to Briefing.com, economists had expected a February reading of 60.5.

Meanwhile, construction spending fell 0.7% in January after dropping 1.6% in December, according to the Commerce Department's report. According to Briefing.com, construction spending was slated to slip by 0.6% in January.

Boston Scientific ( BSX) was the biggest gainer on the S&P 500 after RBC analyst Glenn Novarro upgraded its rating to outperform. Shares rose 5% at $7.53.

General Motors ( GM) said sales rose 46% in February, far surpassing estimates. Ford ( F) saw a 14% increase in vehicle sales in February.

However both stocks were under pressure Tuesday as investors worried that rising oil prices will hurt the recovery in the auto sector. Shares of GM slid 1.7% to close at $32.95, while the stock of Ford shed 2.6% at $14.63.

Sonus Networks ( SONS), a wireless data infrastructure company , reported a surprise profit and nearly doubled revenue on a sequential basis. The stock finished ahead by 33% at $4.04.

Shares of drug developer Novavax ( NVAX) rose 14% at $2.96 on news that it received a flu vaccine development contract from the Department of Health and Human Services .

Las Vegas Sands ( LVS) saw its shares drop 6.3% to $43.70 after it received a subpoena from the Securities and Exchange Commission requesting the company provide compliance documents related to the Foreign Corrupt Practices Act.

Shares of Fifth Third Bancorp ( FITB) also came under pressure after it received a subpoena from the SEC regarding commercial-loan matters. The stock shed 4.4% at $13.95.

Shares of auto parts retailer Autozone ( AZO)gained 2% to $263.52 on news that second-quarter net earnings jumped 20% to $148.1 million, or $3.34 a share and sales rose 10% to $1.66 billion. Wall Street had been expecting earnings of $3.05 a share on sales of $1.63 billion.

Overall, market sentiment was negative with only 25% of the stocks traded on the NYSE gaining ground while 73% declined.

Elsewhere in commodity markets, the April gold contract surged by $21.30 to settle at $1,431.20 an ounce.

The benchmark 10-year Treasury reversed direction to rise 6/32, weakening the yield to 3.39%. The dollar strengthened against a basket of currencies with the dollar index up by 0.2%.

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Hong Kong's Hang Seng gained 0.3% and Japan's Nikkei jumped 1.2%. London's FTSE fell 1% and the DAX in Frankfurt finished 0.7% lower.

--Written by Melinda Peer and Shanthi Bharatwaj in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.