Oil rose near $40 a barrel Monday after the conflict between Israel and Gaza's Hamas rulers raised tensions in the Middle East. Light, sweet crude was up 37 cents at $38.08 a barrel on the New York Mercantile Exchange.
The advance in oil was welcome for some investors who have worried that plunging prices signaled a long and severe recession. Oil has fallen more than $100 from its peak of $147.27 a barrel on July 11 as a slowing economy curbed demand.
"We've got to watch what's going on in the world," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams. "If nothing major happens I think you're just going to see very light volume."
Investors also digested a potential blow to dealmaking on Wall Street. On Sunday, Kuwait's government canceled its $17.4 billion K-Dow Petrochemicals joint venture with Dow Chemical Co., saying it was "very risky" because of the global financial crisis and low oil prices. The joint venture was set to begin Thursday.
Rohm & Haas Co. maintains that its proposed $15.3 billion takeover by Dow Chemical won't be affected by Dow's substantial loss of income from the venture. But investors punished shares, driving them down 22 percent, or $13.72, to $49.84. Dow Chemical shares lost $3.80, or 21 percent, to $15.18.
Trading was very light as many investors took the holiday-shortened week off. Low volume tends to skew price movements.
In midmorning trading, the Dow Jones industrial average fell 86.10, or 1.01 percent, to 8,429.45.
Broader indexes also fell. The Standard & Poor's 500 index fell 10.60, or 1.21 percent, to 862.20; the Nasdaq composite index fell 27.53, or 1.80 percent, to 1,502.71.
Declining issues were ahead of advancers by nearly 2 to 1 on the New York Stock Exchange, where volume came to an extremely light 195.7 million shares.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.07 percent from 2.14 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from 0.01 percent late Friday.
The dollar was lower against other major currencies, while gold prices edged higher.
Wall Street has largely written off the final three trading days of 2008, the worst year since Herbert Hoover was president. The Dow has fallen 36.2 percent, the biggest drop since 1931 when the Great Depression sent stocks reeling 40.6 percent. And the Standard & Poor's 500 index is set to record the biggest drop since its creation in 1957. The index of America's biggest companies is down 40.9 percent for the year.
Canaccord Adams' Rovelli said investors will be waiting to make big moves until after the Jan. 20 inauguration of President-elect Barack Obama. Wall Street is eager for details on his proposed stimulus package for the economy.
Also this week, investors will be looking for insight into how retailers fared after the weak Christmas selling season. Stores have slashed prices even further to entice post-holiday shoppers but with many consumers nervous about the economy they're reluctant to open their wallets. That's a troubling prospect for investors, since consumer spending accounts for more than two-thirds of U.S. economic activity.
The Russell 2000 index of smaller companies fell 10.22, or 2.14 percent, to 466.55.