Oil Prices Sink Again; Stocks Finish Mixed

Oil prices fell sharply for a second day Thursday, pulled down in part by expectations of slower economic growth in China after its government raised interest rates.

The stock market was mixed, and key indexes were little changed after soaring Wednesday. Consumer-related issues gained as oil declined, but shares of commodity producers were hurt by concerns about lower demand from China.

In New York, near-term oil futures tumbled $1.54, or 2.9%, to $50.92 a barrel, their lowest price since Oct. 4.

The oil market was hit hard Wednesday after the U.S. Energy Information Administration issued its weekly report on oil inventories, which indicated that U.S. crude supplies rose for a fifth straight week. That drove oil futures down $2.71 a barrel from Tuesday’s record high of $55.17.

On Thursday, China’s surprise announcement that it would raise its benchmark one-year lending rate by 0.27 percentage point to 5.58% -- the first increase in more than nine years -- triggered more selling in the oil market as traders bet that the Chinese economy would weaken.

China’s growth boom in recent years has made the country a major importer of oil.

“China has been the catalyst that started the ball rolling as far as oil prices are concerned,” Fadel Gheit, oil analyst at Oppenheimer & Co. in New York, told Bloomberg News. “Oil prices are in a speculative bubble that is likely to burst.”

China last year became the world’s second-largest oil consumer, after the United States. China’s oil use is expected to jump 15% this year to 6.3 million barrels a day, according to the International Energy Agency.

Lara Rhame, a currency strategist for Credit Suisse First Boston in New York, said China’s rate increase was a “baby step into what will probably be a more broad-based effort by the Chinese to stop their economy from overheating.”

Prices of commodities such as cotton and copper fell with oil, anticipating weaker demand. In turn, shares of many commodity-related companies slid.

Aluminum giant Alcoa fell 96 cents to $32.41, copper miner Phelps Dodge dropped $3.46 to $84.69 and U.S. Steel lost $1.05 to $36.13.

But many consumer-oriented stocks rallied on hopes that lower energy prices would boost consumer spending. Retailer Target added 55 cents to $50 and Hershey Foods gained 83 cents to $50.45.

Overall, major market indexes ended slightly higher after starting the day in the red. The Dow Jones industrial average added 2.51 points, or less than 0.1%, to 10,004.54. The Standard & Poor’s 500 was up 2.04 points, or 0.2%, to 1,127.44.

The stock market had rallied sharply Tuesday and Wednesday, so some profit-taking was expected, analysts said. Also, some traders may be stepping back as the election nears.

Winners topped losers by a narrow margin on the New York Stock Exchange, while losers had a slight edge on Nasdaq. Trading remained heavy.

Technology stocks continued to outperform the broader market, as has been the case since mid-August. The tech-heavy Nasdaq composite index rose 5.75 points, or 0.3%, to 1,975.74, its highest close since July 2.

Apple Computer jumped $1.89 to $52.19, Google soared $7.33 to $193.30 and NCR gained $1.09 to $53.86.

But Ask Jeeves plunged $8.41 to $26.58 on concerns that the Internet search engine is losing market share to rivals.

In other markets, Treasury bond yields eased even though the slide in oil prices could be bullish for the U.S. economy. The 10-year T-note yield dipped to 4.05% from 4.09% on Wednesday.

The dollar initially rallied on China’s rate move, then pulled back. Some analysts said China’s move lessened the chance that it would allow its currency to rise against the dollar -- a step that also could slow the Chinese economy’s growth.

Among the day’s highlights:

* Airline stocks were winners as oil fell. Continental soared 68 cents to $9.57 and AMR, parent of American Airlines, added 28 cents to $8.13.

* Energy stocks were broadly lower. Amerada Hess sank $4.50 to $79.35 and Burlington Resources lost $1.41 to $40.65.

* DreamWorks Animation led a raft of initial public offerings higher on their first day of trading. DreamWorks soared $10.75 to $38.75. Also rising were retailer Build-a-Bear Workshop, up $5.05 to $25.05, and fund manager Calamos Asset Management, up $1.92 to $19.92.