Stock Rally Runs Out of Gas as Oil Tops $110

The rally on Wall Street ran out of gas Wednesday as oil prices jumped past $110 a barrel and enthusiasm for the Federal Reserve's liquidity plan faded.

The S&P 500 index lost nearly 1 percent, while the Dow Jones Industrial Average and Nasdaq lost about half a percent. All three major indexes have declined in four of the past five sessions.

The Dow is now down 8.7 percent for the year, while the Nasdaq is down 15 percent and the S&P 500 is off 11 percent.

Crude oil surged to a new intraday high over $110 a barrel, before settling at $109.92 a barrel. Earlier, the commodity fell following an unexpectedly large increase in crude-oil supplies due to higher imports and lower refinery utilization. Crude inventories rose by 6.2 million barrels to 311.6 million barrels last week, the EIA reported, more than three times the increase analysts had expected. The build left crude stocks at their highest levels since late November.

The Fed's plan to pump $200 billion into the cash-starved credit markets inspired some buying earlier in the day, after propelling U.S. stocks to their best one-day performance in five years on Tuesday.

But not all analysts were convinced that it would get the market on an upswing.

"One bold move by the Fed doesn't solve all the problems and all the issues," Georges Yared, founder and chief investment officer of Yared Investment Research in Wayzata, Minn., told Reuters.

"I think it's a great step, certainly in the right direction. But it's not the end-all, be-all answer," Yared said. "There's still some digesting going on. People are trying to assess how the Fed's move will begin to benefit corporate earnings and move the banks along to start loaning money."

Caterpillar , the best performer on the Dow, rose 3.6 percent to end the day at $75.25, its highest close since early December. The world's largest maker of construction and mining equipment raised its revenue forecast, citing worldwide infrastructure spending. The company said fast-growing overseas sales will help compensate for weakness in the U.S. and propel it to meet earnings targets even if a recession occurs.

General Electric , another Dow leader, advanced after Chief Executive Jeffrey Immelt said in a letter to investors that the company is well-positioned for a challenging year. On Tuesday, Immelt bought 62,000 shares of GE priced between $32.72 and $33, according to an SEC filing.

Multinational companies like GE also benefited from the weak dollar, which hit another new low against the euro Wednesday.

Financials retreated after leading Tuesday's rally, with the S&P financial-sector index ending down 2.1 percent.

Citigroup , the largest U.S. bank, shed 1.3 percent after earlier being one of the Dow's top gainers.

Bear Stearns shares lost 2.2 percent as rumors of liquidity problems at the brokerage firm have created a lot of volatility for the stock this week.

Bear Stearns CEO Alan Schwartz told CNBC that the company's $17 billion cash cushion has been virtually unchanged since the end of fiscal 2007 and he sees no pressure on liquidity. In an interview Wednesday morning, Schwartz said he's comfortable with analysts' first-quarter earnings estimates.

Punk Ziegel analyst Richard Bove, who cut his target for Bear Stearns shares in half Tuesday, saying the brokerage firm's business model was broken and a sale may be the best solution, cut his earnings outlook on three other investment banks ahead of earnings due out next week.

Bove slashed his 2009 and 2010 earnings estimates for Bear Stearns, Goldman Sachs , Lehman Brothers and Morgan Stanley , saying he doesn't expect a recovery in mortgages, credit derivatives, private equity and investment banking anytime soon.

All four firms "are likely to experience declines in activity until 2010," Bove said, and need to rebuild their business models.

Freddie Mac's CEO said at the company's analyst meeting today that the current U.S. housing market is the worst in a century. Freddie's finance chief added that "there is no dilutive capital raise planned."

Thornburg Mortgage soared 83 percent after Bear Stearns raised its rating on the stock to "peer perform" from "underperform."

It's not a good prognosis for health insurers.

Humana shares plunged, making the stock the biggest drag on the S&P 500 index, after the company, one of the biggest Medicare-plan providers, lowered its earnings projection for the year, due to a mispriced plan for Medicare drugs. Humana shares had already fallen more than 24 percent after health insurer WellPoint on Tuesday slashed its full-year guidance.

Merrill Lynch raised its rating on Humana, saying this was a matter of mispricing, not signs of broader problems like health-insurance providers face, and Humana can still rebid in 2009.

WellPoint continued to slide. A day earlier, the health insurer's lowered outlook spurred a slew of downgrades across the sector as analysts said the sector may not be the safe bet for a downturn that many investors had hoped.

Elsewhere in the sector, shares of UnitedHealth Group also declined. Aetna , which affirmed its full-year outlook earlier in the week, saw its shares tick higher.

Airline stocks tumbled after J.P. Morgan downgraded its ratings and estimates on several carriers, including Northwest