Oil prices drag stocks down again

NEW YORK - Falling oil prices are becoming another sign of deflating investor hopes for a speedy economic recovery.

Major stock indexes skidded 2 percent yesterday as crude fell for the fifth straight day.

Falling oil can help the economy by reducing costs, but investors see the latest slide as an unwelcome prediction that demand for energy and basic materials will remain weak as the recession lingers. The Dow Jones industrial average fell 161 points to its lowest close since late April.

Trading volume remained light amid a dearth of news about the economy this week. Investors also await the beginning of the second-quarter earnings season, which starts today with Alcoa Inc. but won't pick up speed until next week.

Stocks have drifted lower in recent days as the market's confidence about the economy took hits from a poor jobs report for June, waning consumer confidence, and plunging commodities prices.

The Dow fell 161.27, or 1.9 percent, to 8,163.60. It was the lowest finish for the blue chips since April 28. The broader Standard & Poor's 500 index fell 17.69, or 2 percent, to 881.03, its lowest finish since May 1. The Nasdaq composite index lost 41.23, or 2.3 percent, to 1,746.17, the lowest close since May 27.

Oil tumbled from an eight-month high hit last week on concerns that a weak economy will dampen demand for energy.

Light, sweet crude fell $1.12 to settle at $62.93 a barrel on the New York Mercantile Exchange, helping to send Exxon Mobil Corp. down $1.54, or 2.3 percent, to $66.56, while ConocoPhillips lost 84 cents, or 2.1 percent, to $39.99.

Doreen Mogavero, president of brokerage Mogavero, Lee & Co., said light trading volume meant many investors were standing on the sidelines. She said discussions in Washington and on trading desks about the potential for more government stimulus spending was unnerving.

"Once you start saying this is something we might have to do again, that says it's not working and that's not good," she said.

Disappointing economic news over the last few weeks, culminating in Thursday's worse-than-expected jobs report for June, has undermined investors' belief that the economy would rebound significantly.

Investors are already on edge with corporate results due. Analysts say expectations are still relatively low, so companies could do better than what the market has forecast. Despite the overall weakness in the market yesterday, there was some buying of health-care stocks after an analyst said the White House had signaled it would be open to negotiation on a public insurance option in its drive to reform health care, which would benefit managed-care companies.

Aetna Inc. jumped more than 6 percent, adding $1.53 to $25.94. Cigna Corp. rose more than 7 percent, gaining $1.77 to $25.24. Both companies have a major Philadelphia-area presence.

The dollar gained against other major currencies. Gold prices rose.

In other trading, the Russell 2000 index of smaller companies fell 9.78, or 2 percent, to 484.25.