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) 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 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) were abandoned.
But Hewlett-Packard (HPQ.N) shares dragged on the Dow and S&P 500 as it struck a deal to buy Electronic Data Systems EDS.N 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.
The S&P financial index .GSPF fell 1.4 percent. Analyst Meredith Whitney of Oppenheimer said the outlook for the investment banks was bleaker than reflected in the market.
U.S. crude rose $1.57, or 1.3 percent, to settle at $125.80 a barrel after hitting an all-time high of $126.98.
Higher oil prices are a negative for stocks because they reduce consumer and business spending on other items. The S&P retail index .RLX slipped 0.2 percent.
Shares of Apple Inc (AAPL.O), up 1 percent at $189.96, helped bolster the Nasdaq. Apple said its iTunes online store will begin selling HBO cable network shows.
Yahoo shares jumped 5.2 percent to $26.56.
Hewlett-Packard was the top weight on the S&P 500 and the Dow, with its shares down 5.3 percent at $44.27. Electronic Data shares were up 1.1 percent at $24.34.
Wal-Mart Stores Inc (WMT.N) posted stronger-than-expected earnings but indicated results for the current quarter could have trouble hitting Wall Street’s estimates as customers struggle.
Wal-Mart’s stock fell 2.4 percent to $56.65.
The retailer’s outlook contrasted with data showing a surprising rise in retail sales last month when auto sales are excluded. But including auto purchases, retail sales fell last month.
In other economic news, a survey released by the Federal Reserve Bank of Philadelphia showed the U.S. economy will barely grow in the second quarter after sluggish growth early in the year, while inflation is expected to rise.
The National Association of Realtors said the median value of existing U.S. single-family home sales in metropolitan areas fell 7.7 percent in the first quarter from a year ago.
Trading was light on the New York Stock Exchange, with about 1.21 billion shares changing hands, below last year’s estimated daily average of roughly 1.90 billion, while on Nasdaq, about 1.89 billion shares traded, also below last year’s daily average of 2.17 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 8 to 7 despite the Dow’s lower close. On the Nasdaq, advancing stocks narrowly outnumbered declining ones by 1,461 to 1,359.
Editing by Jan Paschal