Stocks resumed their descent as a slightly-better-than-expected report on U.S. home sales offered a brief reprieve but proved no match for relentless oil prices.
Existing-home sales fell 1 percent to a 4.89 million annual pacein April, the National Association of Realtors reported. Still, inventories ballooned by nearly 11 percent and the number of single-family homes on the market was the highest in 23 years. Median home prices have fallen 8 percent since April 2007.
Stocks had opened the day lower, moving in tandem with oil prices, which resumed their ascent.
Oil's surge has been wreaking havoc across the financial markets and was threatening to do the same during the last trading day before the Memorial Day holiday.
"Oil seems resilient," Art Cashin, director of floor operations at UBS, told CNBC. "And I think it’s going to hit the consumer like a two-by-four over the head, and this economy is going to begin to sink again," Cashin said.
"I don’t know if it’s going to be a month or four months, but I think the recession is going to bring stock prices down," Cashin said.
Crude oil swung between $130 and $134 a barrel during the session; A day earlier, crude topped $135 a barrel before profit-taking dragged it down to settle at $130.81 a barrel.
Airline stocks took another beating from high oil prices, with the S&P airline index down 2 percent. Continental dropped 7 percent and United parent UAL skidded 6 percent.
Kimberly-Clark slipped after the maker of Kleenex tissue, Huggies diapers and other consumer products said it's raising prices 6 to 8 percentto offset soaring energy and raw-materials costs.
Ford Motor fell again, after tumbling more than 8 percent Thursday, after the auto maker said it was scaling back production and would not meet expectations for a profit by 2009.
General Motors shares were the biggest decliner on the Dow. A contract settlement ended an 87-day strike at American Axle , GM's biggest parts maker.
AIG was one of the top three decliners on the Dow after Moody's downgraded the insurance company's debt rating, citing mortgage-related losses.
And JP Morgan Chasehas launched a major round of layoffs in its investment banking unit, some of the stiffest on Wall Street, in an effort to cut costs due to a slowdown in that business, CNBC has learned.
There was some merger buzz floating around the market today.
Shares of Anheuser Busch jumped amid speculation that Belgian brewer InBev, the world's second-biggest by volume, is working on a $46 billion bid for its American rival. The news, first reported on the Financial Times's Alphaville blog, suggested the price tag could be $65 a share for the Bud brewer.
Meanwhile, Halliburton , the world's second biggest oil services company, has made a $3.4 billion offer for Britain's Expro International.
And Microsoft CEO Steve Ballmer brushed off the importance of its recent proposal to buy Yahoo .
"Yahoo was never the strategy we were pursuing," he told a packed hall at a technology conference in Moscow. "We will spend money on some acquisitions. You can do a whole lot of things with 50 billion dollars," he added.
Gap reported after the bell Thursday that its net jumped 40 percent but that was due to tighter inventories and fewer markdowns; sales actually dropped 4.8 percent as the company, which operates Gap, Banana Republic and Old Navy chains, grapples with a turnaround effort and slower consumer spending.
FRIDAY: Bond market closes early for Memorial Day holiday
MONDAY: All U.S. financial markets closed for Memorial Day
TUESDAY: Consumer confidence; new-home sales; S&P/Case-Shiller home price report; Fed's Yellen speaks; Idaho primary
WEDNESDAY: Weekly mortgage applications; durable goods; Fed's Stern and Fisher speak
THURSDAY: Weekly jobless claims; weekly crude inventories; GDP; Fed's Kohn speaks
FRIDAY: personal income and spending; Chicago PMI; consumer sentiment; Fed's Rosengren speaks
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