Gas prices curb consumer spending

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NEW YORK (AP) -- Stocks tumbled yesterday after Wal-Mart Stores Inc. said higher gasoline prices curbed customer spending. The news sent many retail stocks lower, while government data showing a larger-than-expected jump in inflation also dampened investor enthusiasm.

Wall Street is facing increasing evidence that high energy prices, spurred by record crude oil futures, are discouraging consumer spending. Wal-Mart stock dropped after the company blamed lower quarterly revenue on higher gasoline prices. Shares of other retailers, including Target Corp., Home Depot Inc. and Limited Brands Inc. dropped as well.

"We are starting to see the bite from some of the risks that have been lurking in the background, like oil," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. "I think it's going to continue to be tougher for this market to do anything positive."

Investors also fretted over the latest reading of the Labor Department's Consumer Price Index, which rose 0.5 percent in July -- the biggest increase in three months and larger than the 0.4 percent increase economists had expected. With food and energy prices removed, "core" CPI rose 0.1 percent.

The Dow Jones Industrial Average tumbled 120.93, or 1.14 percent, to 10,513.45.

Broader stock indicators also lost ground. The Standard & Poor's 500 Index fell 14.53, or 1.18 percent, to 1,219.34, and the Nasdaq Composite Index fell 29.98, or 1.38 percent, to 2,137.06.

Bonds rose sharply as stocks moved lower, with the yield on the 10-year Treasury note falling to 4.21 percent from 4.28 percent late Monday. The dollar was up against the euro and gold prices fell.

Crude oil futures traded in a narrow range but remained in the mid-$60 range -- high enough to keep gasoline and heating oil prices near record levels. A barrel of light crude was quoted at $66.08, down 19 cents, on the New York Mercantile Exchange.

In one of the few bright spots of the session, investors welcomed the Commerce Department's report on home construction. For July, the number of new housing projects fell slightly to an annualized 2.042 million units, but housing permits issued reached a 21-year high.

Yet the retail sector sputtered.

Investors focused on Wal-Mart and its warnings of future troubles. While the Dow component's earnings beat Wall Street's profit forecasts by 2 cents per share, the company's profit gain was its smallest in four years and its revenue missed estimates. The company warned that its third-quarter earnings would be lower than expected, again blaming high gas prices for eating into shoppers' spending. Wal-Mart fell $1.53 to $47.57.

Fellow Dow Industrial Home Depot Inc. fell 94 cents to $40.67 despite reporting a 14 percent jump in quarterly profits that beat Wall Street's expectations by 3 cents per share on strong revenue. The company, apparently avoiding the energy pinch felt by Wal-Mart and other retailers, also increased its profit forecasts for the rest of the year.