Stocks fall; oil rises; inflation fears advance

NEW YORK - Stocks tumbled yesterday as oil prices rebounded, fanning concerns that inflation will further pinch consumers and lead central banks to raise interest rates. The Dow Jones industrial average fell more than 200 points to its lowest close since mid-March.

Investors are uneasy about oil prices, which traded yesterday as high as $138.30 a barrel on the New York Mercantile Exchange before settling up $5.07 at $136.38. Having breached $139 a barrel last week, record-high crude has increasingly posed both an inflationary risk and a threat to growth.

Energy Department data showed yesterday that gasoline supplies grew last week, but that crude-oil inventories fell more than analysts expected. The weekly report suggested no letup in U.S. energy demand, even as consumers adjust their budgets to accommodate gasoline that averages more than $4 a gallon nationally.

The Federal Reserve's Beige Book, which provides readings on the U.S. economy by region and arrives two weeks before the Fed's next meeting, indicated that Americans are straining under rising energy and food costs. The Fed said the economy remained "generally weak."

The findings seemed to confirm many of Wall Street's concerns.

The Dow fell 205.99, or 1.68 percent, to 12,083.77. The biggest loser among the 30 Dow components was Alcoa Inc., which fell $3.40, or 7.96 percent, to $39.32 after a JPMorgan Chase & Co. analyst said the aluminum producer was not planning to sell itself or spin off part of its business.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 22.95, or 1.69 percent, to 1,335.49, and the Nasdaq composite index fell 54.93, or 2.24 percent, to 2,394.01.

The dollar fell against other major currencies, while gold prices rose.

Investors are worried that the spike in oil prices will dent consumer spending, which accounts for more than two-thirds of U.S. economic activity and is crucial to some investors' hopes of seeing the economy rebound from a slowdown in the second half of the year. However, the prospect of a sustained elevation of prices in oil and other commodities has dimmed some of those hopes.

In corporate news, Corporate Express NV, the Dutch office-supplies distributor, accepted a sweetened $2.7 billion buyout bid from U.S. office-supplies retailer Staples Inc. Staples rose $1.23, or 5.31 percent, to $24.38.

Lehman Bros. Holdings Inc. fell for the fourth straight session. The company reported this week that it lost more than $2.8 billion for the fiscal second quarter ended May 31 and announced plans to raise $6 billion in capital to help its balance sheet. The stock declined $3.75, or 13.64 percent, to $23.75.

The Russell 2000 index of small companies fell 14.74, or 2.01 percent, to 717.88.

Overseas, Japan's Nikkei 225 average closed 1.16 percent higher. Britain's FTSE 100 index closed down 1.78 percent, Germany's DAX 30 index lost 1.78 percent, and the French CAC-40 index fell 2.10 percent.