Stocks tumble 206 points on oil surge
Wall Street slumps as crude prices rally more than $5 a barrel, the dollar falls and Fed's 'Beige Book' shows more weakness.
NEW YORK (CNNMoney.com) -- Stocks tumbled Wednesday, with the Dow losing over 200 points, amid a $5 spike in oil prices, more problems for the bank sector and a report showing continued economic weakness.
The Dow Jones industrial average (INDU) lost 206 points, or 1.7%. The broader Standard & Poor's 500 (SPX) index lost 1.7% and the Nasdaq composite (COMP) lost 2.2%.
The Dow Jones Transportation average fell 4.7% on the jump in oil prices.
"Oil prices are spiking today and there's also this renewed issue with the financial sector," said Greg Church, president at Church Capital.
Lehman Brothers (LEH, Fortune 500) stock fell as investors continued to react to the company's huge quarterly loss announced earlier this week. Merrill Lynch downgraded the stock to "neutral" from "buy."
And Church said that the financial sector was being plagued by vague market rumors that supposedly bullet-proof Goldman Sachs (GS, Fortune 500) could take a big hit.
Anheuser-Busch (BUD, Fortune 500) stock could be active Thursday after it was announced late Wednesday that Belgian rival InBev has made a nearly $47 billion offer for the company. Reports suggested InBev was interested in the maker of Bud a few weeks ago. Shares gained 7% in after-hours trading.
In other news, it was announced after the close of trade that the House bid to extend jobless benefits beyond the six-month mark has failed. (Full story)
Thursday brings the May retail sales report from the Commerce Department. Sales are expected to have risen 0.5% after falling 0.2% in April. Sales excluding autos are expected to have 0.7% after rising 0.5% in April.
Oil prices surge. U.S. light crude oil for July delivery rose $5.07 to settle at $136.38 a barrel on the New York Mercantile Exchange, after the government's weekly supply report showed crude prices shrank more than expected.
Meanwhile the DOE forecast that oil prices will stay well above $100 a barrel and gas prices will stay above $4 a gallon through 2009.
"You're seeing a growing awareness that the rising price of oil is impacting everyone's ability to do business," said Mark Travis, president and CEO Intrepid Capital Funds.
Additionally, he said investors were responding to the ongoing malaise in financial markets.
The Federal Reserve released its periodic 'Beige Book' survey of economic activity in the afternoon. As expected, the survey showed continued economic weakness in late April and early May, due to weaker consumer spending and advancing commodity prices.
Eye on the Fed: Chairman Ben Bernanke hinted earlier this week that the central bank will soon need to raise interest rates, to combat higher pricing pressure - and to prop up the weak U.S. dollar.
Fed Vice Chairman Donald Kohn, speaking at a Fed conference in Massachusetts, said that the rise in oil prices is raising consumer inflation expectations and that it is critical for these expectations to be contained. Fed Governor Randall Kroszner spoke at the same conference on consumer protection and the role of credit in the economy.
Company news: Corporate Express NV, a Dutch distributor of office supplies, accepted an improved $2.7 billion bid from Staples (SPLS, Fortune 500).
Alcoa (AA, Fortune 500) tumbled almost 8% after a JPMorgan (JPM, Fortune 500) analyst said that the aluminum producer is not looking to sell itself or spin off part of its business and that this will be a disappointment for Wall Street.
Including Alcoa, 27 out of 30 Dow components slid. Other big decliners included AIG (AIG, Fortune 500), American Express (AXP, Fortune 500), Citigroup (C, Fortune 500) and General Motors (GM, Fortune 500). The lone Dow advancers were the oil components Exxon Mobil (XOM, Fortune 500) and Chevron (CVX, Fortune 500) and chemical maker DuPont (DD, Fortune 500).
Market breadth was negative. On the New York Stock Exchange, losers topped winners four to one on volume of 1.39 billion shares. On the Nasdaq, decliners topped advancers three to one on volume of 2.17 billion shares.
Gas hits new record: The national average price for a gallon of regular unleaded gas rose to a record $4.052 from the previous day's record of $4.043, AAA reported.
Other markets: The dollar slipped versus the euro and yen.
Treasury prices advanced, lowering the yield on the benchmark 10-year note to 4.07% from 4.10% late Tuesday. Bond prices and yields move in opposite directions.
COMEX gold for August delivery rose $11.70 to settle at $882.90 an ounce. 
