US stocks: Market sags on oil and AIG

NEW YORK - US stocks slipped on Thursday, capping a quarter of losses, as oil prices surged and insurer American International Group Inc. dropped 3 per cent after losing a prestigious credit rating.

Crude oil for May delivery shot up US$1.41 to settle at US$55.40 a barrel after Goldman Sachs, the biggest trader of energy derivatives, said oil markets have entered a "super-spike" period that could see prices climb as high as US$105 a barrel.

High oil prices generally hurt equities because they squeeze corporate profit margins and curb consumer spending.

The Dow Jones industrial average was down 37.17 points, or 0.35 per cent, to end at 10,503.76. The Standard & Poor's 500 Index was down just 0.82 of a point, or 0.07 per cent, at 1,180.59. The Nasdaq Composite Index was down 6.44 points, or 0.32 per cent, to close at 1,999.23.

For the quarter, the Dow ended off 2.6 per cent and the S&P 500 finished down 2.6 per cent, making it the worst quarter for the S&P 500 in two years.

The Nasdaq fell 8.1 per cent, its largest percentage decline since the third quarter of 2002, when it dropped 19.9 per cent.

The lackluster session came a day after US stocks staged their biggest rally in nearly four months. Investors were cautious on Thursday ahead of Friday's closely watched US jobs report for March.

The oil price hike "greased" the downside for the indexes, said Al Goldman, chief market strategist at A.G. Edwards.

"Tomorrow we've got the widely anticipated employment figures so there're lots of reason for the market to take a little siesta here," Goldman said.

"But there's something to look forward to -- April has been the best month of the year since 1950 for the Dow, " Goldman added, "and April is helped if you come off a soft March. "

The Stock Trader's Almanac says April has been the best month for the Dow average since 1950.

Traders and strategists pointed to some impact from the end of the quarter, which can trigger window dressing -- when money managers buy shares to boost their portfolios. Goldman said "a lot of that was taken care" of on Wednesday.

Among falling stocks, American International Group Inc. sank after acknowledging accounting errors and losing its prized "AAA" credit rating with Standard & Poor's.

AIG shares dropped 3 per cent, or US$1.75 to US$55.41. On Wednesday, AIG acknowledged accounting errors that could stretch back 14 years and Standard & Poor's cut AIG's debt ratings.

Shares of Johnson & Johnson slid 1.3 per cent, or 89 cents, to US$67.16, and the stock of Biomet Inc. fell 7 per cent, or US$2.73, to US$36.30 after several orthopedic device makers received subpoenas in a federal probe of their relationships with surgeons.

But energy shares' advances helped keep the S&P 500 level. They received a boost from soaring oil prices, with Exxon Mobil Corp. up 0.6 per cent at US$59.60, and ConocoPhillips up 2.3 per cent at US$107.84.

Modest gains in interest-rate sensitive stocks such as banks also helped support the S&P 500. The Philadelphia KBW Bank Index rose 0.1 per cent.

US Treasury debt prices held solid gains after economic data calmed fears of rising inflation and suggested the Federal Reserve can maintain its "measured" approach to tightening monetary policy.

The gains in bonds was a "plus for interest-sensitive groups like the banks and brokers", said Elliot Spar, market strategist with Ryan Beck & Co.

Economic reports indicated that the US economy seemed to be on firm footing, with strong consumer spending, moderate inflation and a robust outlook for Midwest factories. But a jump in first-time jobless claims last week helped dim some of the optimism.

Morgan Stanley rose 3.6 per cent, or US$1.97, to US$57.25 amid speculation that rising shareholder pressure on Chief Executive Philip Purcell could force his ouster or prompt the Wall Street firm to sell itself to a big bank.

Shares of department store operator J.C. Penney Co. climbed 8.4 per cent, or US$4.02, to US$51.92 following recent speculation that private equity firm Cerberus may be eyeing a buyout of Penney. The company declined to comment on the rumours.

Trading was active, with 1.72 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 1.81 billion shares were traded on Nasdaq, matching last year's daily average.

Advancers outnumbered decliners on the New York Stock Exchange by about 5 to 3 and were about even on Nasdaq.

- REUTERS