Rising Oil Prices Reverse Stocks’ Early-Day Rally

A strong early rally on Wall Street evaporated Wednesday as rising oil prices deflated the market’s enthusiasm over robust earnings from technology bellwethers Hewlett-Packard and Applied Materials.

The Dow Jones industrials gave up a triple-digit advance to close with a loss, while the broader market was mixed.

It was clear that Wall Street remained susceptible to even minor pieces of negative news, as word of higher oil prices sent stocks tumbling late in the day. Near-term oil futures in New York closed at a near-record $41.50 a barrel, up 96 cents and reigniting lingering fears of inflation in the markets.

The Dow closed down 30.80 points, or 0.3%, at 9,937.71, after being up nearly 125 points.

Broader stock indicators were mixed. The tech-focused Nasdaq composite index edged up 0.35 point, or 0.02%, to 1,898.17, while the Standard & Poor’s 500 was down 2.81 points, or 0.3%, at 1,088.68.

Rising stocks still outnumbered losers by narrow margins on the New York Stock Exchange and on Nasdaq.

U.S. Treasury bonds weren’t helped by the late pullback in stocks.

Bonds had cobbled together a modest rally late last week and early this week, pushing yields down from 22-month highs reached on Thursday.

But sellers returned on Tuesday and again on Wednesday, driving yields up. The 10-year Treasury note rose to 4.77% from 4.73% on Tuesday.

For stocks, few market-moving catalysts remain now that earnings-reporting season is winding down, analysts said. The focus will shift almost entirely to when, and how much, the Federal Reserve might tighten credit, they said.

“The markets will really be stuck in a range for a while,” said Russ Koesterich, U.S. equity strategist at State Street Corp. “I think you break out of the range when you get some feeling from the Fed that they don’t see a problem with inflation. That could be a while -- even after the elections.”

If the Fed raises benchmark interest rates in June, as is widely expected, some experts say the removal of uncertainty could create a buying opportunity for stocks -- as long as oil prices can be brought under control and overseas events cooperate.

“If the Fed moves in June with a small rate hike and a very benign statement, and we see oil decline under $40 [per barrel], the combination of those two is going to be very powerful for the market,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. “There’s money to be made between the first Fed rate hike and the election, even with some volatility that we’re sure to find there.”

Among Wednesday’s highlights:

* Many foreign markets had rallied before Wall Street opened, rebounding from recent sharp losses. South Korea’s main market index surged 4.9%. The Indian market rose 2.7%.

* Dow component Hewlett-Packard rose 72 cents to $20.55 after its strong earnings report late Tuesday, but the stock ended down from its intraday high of $21.34.

Applied Materials rose as high as $19.34 but finished with a loss of 21 cents at $18.64.

* Many Internet-related shares ended higher. Ipayment rose $1.83 to $39 and Digital River gained $1.13 to $30.88.

* Gold stocks gained as the metal price rebounded $7.10 to $382.90 an ounce. Barrick Gold added 36 cents to $19.80; Placer Dome rose 22 cents to $14.66.

* Bookseller Borders Group beat Wall Street’s quarterly profit estimate by 2 cents a share on a 10.6% increase in sales. However, Prudential downgraded both Borders and rival Barnes & Noble because of concerns over the coming year’s sales outlook. Borders lost 37 cents to $22.33; Barnes & Noble fell 77 cents to $28.31.

Market Roundup, C5