NEW YORK - Stocks stumbled yesterday after oil prices spiked to a record above $129 a barrel and a government report raised investors' concerns about the effect of inflation on consumer spending. The Dow Jones industrials fell nearly 200 points.
Crude jumped after OPEC's president was quoted as saying his organization would not raise its output before its next meeting in September. That sent a barrel of light, sweet crude to a trading high of $129.60 before it finished just above $129 a barrel on the New York Mercantile Exchange.
Meanwhile, the Labor Department's producer price report indicated higher energy and food prices might be seeping into other parts of the economy - compounding investors' concerns raised by higher oil.
Wall Street is worried that consumer spending could drop off if wholesale price increases are passed along. Consumer spending is critical because it accounts for more than two-thirds of the U.S. economy.
The mood on the Street was further depressed yesterday by sluggish retail reports and comments from Federal Reserve Vice Chairman Donald Kohn that policymakers are inclined to hold interest rates steady.
The Dow fell 199.48, or 1.53 percent, to 12,828.68, logging its biggest daily slide since a 206-point drop May 7.
Broader market indexes also retreated. The Standard & Poor's 500 index shed 13.23, or 0.93 percent, to 1,413.40, and the Nasdaq composite index dropped 23.83, or 0.95 percent, to 2,492.26.
Gold gained, and the dollar fell against other major currencies.
Concerns about rising inflation, spurred by higher prices for commodities, were the topic of a speech by Kohn. The policymaker said he was cautiously upbeat that the economy would recover, and he said the central bank "appears to be appropriately calibrated" to manage inflation over the medium term.
Meanwhile, the Federal Reserve Bank of Chicago reported that U.S. economic activity weakened further in April, reaching its lowest level since the 2001 recession.
But some analysts say they believe the market's slide gave investors an opportunity to collect profits.
Investors did get some data on consumer spending during the session. The International Council of Shopping Centers and UBS Securities L.L.C. showed chain-store sales fell 0.4 percent during the week of May 17, down from 1 percent the previous week.
Investors also mined earnings reports from the Home Depot Inc., Target Corp., and Staples Inc. for clues about consumers.
Home Depot fell $1.50, or 5.20 percent, to $27.37 after it reported that first-quarter profit fell 66 percent amid a continued housing slump.
Target reported that profit dropped almost 8 percent on higher costs, but it beat expectations. Shares fell 63 cents to close at $54.29.
Staples said profit rose 1.5 percent during the quarter, and it reaffirmed its outlook. Shares rose 4 cents to $23.61.
Banking stocks fell after Oppenheimer & Co. Inc. analyst Meredith Whitney said she expected the credit crisis to extend into 2009, and "perhaps beyond." She said firms such as JPMorgan Chase & Co. and Citigroup Inc. had set aside $25 billion to cover losses, but might have to set aside about $170 billion by the end of next year.
Citi fell 88 cents, or 3.83 percent, to $22.11, and JPMorgan dropped $2.29, or 4.98 percent, to $43.70.
The Russell 2000 index of smaller companies fell 2.81, or 0.38 percent, to 735.64.
Overseas, Japan's central bank kept interest rates steady amid lingering worries about a global slowdown. Tokyo's Nikkei closed down 0.77 percent. London's FTSE dropped 2.90 percent, Frankfurt, Germany's DAX fell 1.49 percent, and Paris' CAC-40 shed 1.70 percent.