NEW YORK (AP) -- Wall Street tumbled Tuesday after oil prices spiked to a new record above $129 a barrel and a government report raised investors' concerns about the impact of inflation on consumer spending. The Dow Jones industrials fell more than 200 points.
Crude jumped after OPEC's president was quoted as saying his organization won't raise its output before its next meeting in September. That sent a barrel of light, sweet crude to a trading high of $129.60 before it finished just above $129 a barrel on the New York Mercantile Exchange.
Meanwhile, the Labor Department's producer price report, which indicated higher energy and food prices might be seeping into other parts of the economy, compounded the concerns raised by higher oil. The department said wholesale inflation edged up by 0.2 percent in April following a 1.1 percent jump in March, but outside of food and energy, prices rose by a faster 0.4 percent - double what analysts expected.
Wall Street is worried that a drop-off in consumer spending could ensue if wholesale price increases are passed along; consumer spending is critical because it accounts for more than two-thirds of the U.S. economy.
Analyst Stephen Leeb believes escalating oil prices have now replaced the health of the financial sector as the market's biggest worry. He said rising energy creates a "very vicious circle" through the economy, and thinks the government must take some kind of action to bring down prices.
"Stock investors are watching oil, period," said Leeb, whose New York-based Leeb Capital Management focuses on crude and its impact on equities. "The events that moved the market before revolved around write-offs and foreclosures, but all that's changed."
The retreat in major indexes reversed the optimism of last week, when stocks rose on a growing belief that the economy is still managing to plod along despite worries about both oil prices and the global credit crisis. The loss showed that the market has yet to shake off the volatility that has plagued it since the credit crisis began last summer.
The mood on the Street was further depressed Tuesday by sluggish retail reports and comments from Federal Reserve Vice Chairman Donald Kohn that policymakers are inclined to hold interest rates steady.
In late afternoon trading, the Dow fell 204.85, or 1.57 percent, to 12,823.31. The blue chip index held near its lows of the session, and recorded its biggest intraday slide since a 224 point drop on May 7.
Broader market indexes also retreated. The Standard & Poor's 500 index shed 13.50, or 0.95 percent, to 1,413.13, and the Nasdaq composite index dropped 26.67, or 1.06 percent, to 2,489.42.
Bond prices rose as investors sought the relative safety of government securities. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, fell to 3.77 percent from 3.83 percent late Monday.
Gold prices gained, and the dollar fell against other major currencies.
Concerns about rising inflation, spurred by higher prices for commodities, were the topic of a speech by Kohn. The policymaker said he was cautiously upbeat that the economy will recover, and that the central bank "appears to be appropriately calibrated" to manage inflation over the medium term.
Meanwhile, the Federal Reserve Bank of Chicago issued a report that showed U.S. economic activity weakened further in April and reached its lowest level since the 2001 recession.
But some analysts believe the market's slide gave investors an opportunity to collect profits. Peter Cardillo, chief market economist at New York-based brokerage Avalon Partners, said Tuesday's decline doesn't change the market's long-term prospects.
"The oil price rise is being done by speculators and does not reflect market fundamentals," he said. "But, it still has an effect on the consumer - and investor confidence is equal to consumer confidence, which has been having swings as of late."
Cardillo is watching to see any kind of indicator about how much Americans are spending to get a better idea of how Wall Street views the economy. "It's a battle between prices and the consumer," he said, "and the consumer usually does win."
Investors did get some data on consumer spending during the session. The International Council of Shopping Centers and UBS Securities showed chain-store sales fell 0.4 percent during the week of May 17, down from 1 percent the previous week.
Investors also mined earnings reports from Home Depot Inc., Target Corp., and Staples Inc. for clues about consumers.
Home Depot fell $1.62, or 5.6 percent, to $27.25 after it reported first-quarter profit fell 66 percent amid a continued housing slump.
Target reported that profit dropped almost 8 percent on higher costs, but it beat expectations. Shares fell 50 cents to $54.42.
Staples said profit rose 1.5 percent during the quarter, and reaffirmed its outlook. Shares rose 9 cents to $23.66.
Banking stocks fell after Oppenheimer & Co. analyst Meredith Whitney said she expects the credit crisis to extend into 2009, and "perhaps beyond." She said firms like JPMorgan Chase & Co. and Citigroup Inc. have set aside $25 billion to cover losses, but might have to set aside about $170 billion by the end of next year.
Citi fell 90 cents, or 3.9 percent, to $22.08. JPMorgan, which held its annual meeting Tuesday, dropped $2.11, or 4.6 percent, to $43.88.
Advancers led decliners by 2 to 1 on the New York Stock Exchange, where volume came to a light 832.1 million shares.
The Russell 2000 index of smaller companies fell 6.46, or 0.87 percent, to 731.99.
Overseas, Japan's central bank kept interest rates steady Tuesday amid lingering worries about a global slowdown. Tokyo's Nikkei closed down 0.77 percent.
In Europe, London's FTSE dropped 2.90 percent, Frankfurt's DAX fell 1.49 percent and Paris' CAC 40 shed 1.70 percent.
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