Oil price, financials hit Dow; techs lift Nasdaq

By Caroline Valetkevitch

NEW YORK (Reuters) - Blue-chip stocks declined on Tuesday as oil rose to another record and underscored concerns about inflation, while the Federal Reserve chairman said financial markets are still troubled.

Crude oil futures came within a whisker of $127 per barrel after Iran said it was mulling production cuts, and several Federal Reserve officials highlighted the growing threat of inflation in speeches throughout the session.

Fed Chairman Ben Bernanke also said strong demand from financial institutions to borrow from the Fed showed "markets are still far from normal." Shares of financial companies led declines in the S&P 500 index, with JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) down 3.7 percent at $45.48.

Also weighing on the financial sector was news that an influential analyst at Oppenheimer cut her price targets on the stocks of the biggest U.S. investment banks.

The Nasdaq rose, however, after a jump in shares of Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) on news that Carl Icahn is considering launching a proxy fight for the Internet company after takeover talks between Yahoo and Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) were abandoned.

But Hewlett-Packard (HPQ.N: Quote, Profile, Research, Stock Buzz) shares dragged on the Dow and S&P 500 as it struck a deal to buy Electronic Data Systems (EDS.N: Quote, Profile, Research, Stock Buzz) for $12.6 billion. Some Wall Street analysts criticized the deal, saying HP was paying a rich premium for a slow-growing business.

"We've got to keep our eye on financials," said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. "That group's had a nice move, and it helped the market recover from its March lows. This weakness we need to keep an eye on to see whether it's the beginning of another leg down or just some profit-taking."

The Dow Jones industrial average .DJI fell 44.13 points, or 0.34 percent, to 12,832.18. The Standard & Poor's 500 Index .SPX was down 0.54 of a point, or 0.04 percent, at 1,403.04. The Nasdaq Composite Index .IXIC was up 6.63 points, or 0.27 percent, at 2,495.12.