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Plunge in crude futures helps stocks sizzle, but rally fizzles

The Dow industrials, which initially surge nearly 250 points, finish down 26.

September 03, 2008|Walter Hamilton | Times Staff Writer

A slide in oil prices fueled a strong stock rally Tuesday but couldn't sustain it, and the major indexes finished lower.

Crude futures traded sharply lower early in the day, after Hurricane Gustav inflicted less damage than feared on oil-production facilities in the Gulf of Mexico.

That sent the Dow Jones industrial average soaring nearly 250 points in the first 20 minutes of trading.

But the enthusiasm quickly faded.

Stocks steadily descended and surrendered their gains. The Dow ended down more than 25 points.

A variety of forces did the market in, including fear of other potential hurricanes forming in the Atlantic, concerns about global growth hurting technology demand and uncertainty over the presidential election.

The fact that the calendar now reads September -- one of the market's worst months historically -- didn't help.

"It was kind of a euphoria buy, and then it gave way to reality," said Georges Yared, chief investment strategist at Yared Investment Research in Minneapolis. "This market just didn't have any wheels to it. It couldn't hold the rally."

Stocks reversed course as traders who initially rejoiced at the lightening of Gustav focused on other troubling weather patterns brewing just behind it.

"People who I talked to were all looking at weather maps thinking, 'Oh, God, we've got three more of these developing after Hurricane Gustav,' " Yared said.

Beyond oil, mounting evidence of an economic slowdown in Europe and parts of Asia raised fears that overseas technology sales could suffer. A strengthening dollar aggravated those concerns.

"We're in the midst still of a bottoming process," said Steven Goldman, chief market strategist at Weedon & Co.

The Dow fell 26.63 points, or 0.2%, to 11,516.92.

The Standard & Poor's 500 index dropped 5.25 points, or 0.4%, to 1,277.58, and the technology-dominated Nasdaq composite index slumped 18.28 points, or 0.8%, to 2,349.24.

The Russell 2,000 index of smaller companies fell 0.99 of a point, or 0.1%, to 738.51.

But advancing issues narrowly outnumbered decliners on the New York Stock Exchange.

Yields on Treasury bonds sank along with stocks. The benchmark 10-year Treasury note fell to 3.73% from 3.81% late Friday. The dollar strengthened against most other major currencies.

Oil futures, which tumbled as low as $105.46 a barrel early Tuesday, settled at $109.71, down $5.75 from Friday's close.

Prices of a number of other commodities also dropped. Gold futures fell $24.30, or 2.9%, to $805. An index of 19 commodities lost 3.4%.

Oil stocks declined along with the price of crude. An index of energy companies in the S&P 500 dropped 4.6%. Exxon Mobil fell $2.69, or 3.4%, to $77.32, while Chevron fell $3.03, or 3.5%, to $83.29.

Raw-material producers also lost ground. Aluminum giant Alcoa tumbled $1.67, or 5.2%, to $30.46.

Overseas, key stock indexes rose 0.3% in Britain, 1.5% in Germany and 1.5% in France. Shares fell 1.8% in Japan.

--

walter.hamilton@latimes.com

The Associated Press was used in compiling this report.

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