Dow Dives on Budget, Oil Worries

Wall Street stocks plunged in late trading today, with the Dow Jones industrial average off nearly 80 points at the closing bell due to worries about a sharp rise in oil prices, Congress’ failure to complete details of the budget process and a major decline in the Treasury bond market.

At the bell at 4 p.m., the 30-share average had tumbled 78.22 points to close at 2,445.54--a drop of 3.1%.

It was the Dow’s 11th worst point drop, after the fall of 86.61 points on Sept. 11, 1986, and the lowest close since July 6, 1989, when it was 2,462.44.

Declining issues swamped advancers by more than 4 to 1, while volume on the New York Stock Exchange was a moderate 145.61 million shares, up from 99.47 million shares on Monday.

Traders said the market was pushed down by a compromise agreement on the federal budget crisis that failed to give many specifics on how to cut the gap.

In addition, oil prices soared, with some grades commanding close to $42 a barrel after a veiled threat against Israel by Iraq’s Saddam Hussein.

The oil price surge sent the bond market sharply lower, with the benchmark 30-year Treasury bond down nearly 2 full points in late trading. That pushed the yield up to 8.97% from 8.79% Monday.

The rising oil price was “the minute-to-minute focus of the market,” said Larry Wachtel, a first vice president with Prudential-Bache Securities Co.

Wall Streeters also had doubts about emergency legislation signed by President Bush to keep the government open for another 11 days. Bush said, however, there is “no assurance” Congress will reach agreement on a $500-billion deficit reduction package.

The most NYSE active stock was Motorola Inc., down 6 1/8 to 53 5/8 after settling a patent infringement battle with Hitachi Ltd.

Travelers Corp. fell another 1 1/4 to 13 1/8 amid continued concern over its recent losses.

UAL Corp. was down 4 1/2 to 86 3/4 after its board rejected an employee buyout bid, which became the fourth failed attempt to take over the airline in three years.

The climb in oil prices depressed the bond market by increasing the threat of higher inflation. Inflation erodes the value of bonds and also gives the Federal Reserve less room to ease its monetary policy and allow interest rates to drop.

Bond traders have been waiting anxiously for the Fed to relax credit, but they know higher oil prices and, more important, the lack of a budget agreement in Washington, will prevent the Fed from acting.