Dow slides 227 points on oil prices, Federal Reserve forecast

The stock market skidded again today, marking its worst two-day performance since February, as crude oil leaped above $133 a barrel and the Federal Reserve issued a downbeat economic forecast.

The Dow Jones industrial average sagged 227.49 points, or 1.8%, to 12,601.19. The blue-chip gauge is down nearly 430 points in the last two days.

The Standard & Poor’s 500 index skidded 22.69 points, or 1.6%, to 1,390.71. The Nasdaq composite index slipped 43.99 points, or 1.8%, 2,448.27.

After rising steadily over the last 10 weeks, the market has shifted noticeably in tone as investors have grown increasingly concerned about the effect of rising oil prices on consumer wallets and corporate bottom lines.

Airline stocks hit severe turbulence today after AMR Corp, parent of American Airlines, announced that it would eliminate some flights to offset soaring fuel prices. The carrier also said it would impose a $15 fee on the first piece of luggage checked by travelers.

AMR shares landed down 25%. UAL Corp. sank 30%, and Delta Air Lines was off 16%.

Crude oil futures jumped more than $4 a barrel today after the Energy Information Administration released data showing that oil reserves fell last week.

The stock market, meanwhile, displayed increasing concern that higher gasoline prices would lead consumers to cut back on spending on things other than fuel.

Investors are also worried that companies won’t be able to pass the full extent of rising raw-material costs to customers, thus squeezing profit margins and denting earnings.

Although such inflationary concerns aren’t new, the market had been willing to overlook them as it celebrated the Fed’s interest rate cuts and other actions to combat the housing meltdown and credit crunch.

But the Fed today released minutes from its last meeting that all but confirmed that it wouldn’t cut rates again even if the economy weakened further. The Fed also said it had lowered its forecast for 2008 economic growth by almost 1 percentage point.

Financial stocks tumbled, in part on a report in the Financial Times that rating firm Moody’s had knowingly failed to correct a computer error that bestowed higher-than-warranted ratings on some complex fixed-income securities. Moody’s shares tumbled 16%.

 walter.hamilton@latimes.com