Stocks declined as a slightly-better-than-expected report on U.S. home sales offered a brief reprieve but proved no match for relentless oil prices.
The Dow Jones Industrial Average and Nasdaq were on track to record their worst weekly percentage declines since mid-February. As of midday, both indexes were down about 3.7 percent on the week; the S&P 500 index was down about 3.2 percent.
A huge part of the Dow's drop this week has been due to General Motors , which is off 15 percent since last Friday, as soaring oil prices squelch demand for autos.
Ford shares are also down about 15 percent on the week. Driving home these hard times for auto makers, Ford on Thursday lowered its profit outlook, saying it no longer expects to return to profitability in 2009.
Trading was light due to Monday's Memorial Day holiday: Just over 300 million shares had traded hands by 11 a.m. ET; a typical day sees 400 million shares change hands by that time.
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.
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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