NEW YORK — Stocks fell sharply and oil prices rose to their highest level in two years Tuesday as unrest in Libya worsened.
The Dow Jones industrial average sank 178.46 points, or 1.4 percent, to close at 12,212.79. Bond prices rose as investors sought safety.
The Standard & Poor’s 500 index fell 27.57, or 2 percent, to 1,315.44. It was the worst day for the S&P since Aug. 11.
The Nasdaq fell 77.53, or 2.7 percent, to 2,756.42.
“The market is extremely vulnerable to the kind of global risk we’re seeing now,” said Tom Mangan, who helps oversee $2.5 billion as a money manager at James Investment Research Inc. in Xenia, Ohio. “If the violence in Libya turns into a prolonged civil war, itwill increase the risk that oil supplies could be disrupted. This could be the catalyst that starts the 5 percent to 10 percent correction.”
Among traders, the main worry is that unrest will spread to other oil-rich countries in the Middle East and North Africa. Protests toppled longtime dictators in Libya’s neighbors Tunisia and Egypt in the past month, and protests are continuing in Yemen and Bahrain.
Oil producer stock prices rose with the prospect of a drop in oil supply. Chevron Corp. gained 1.6 percent, the largest gain among the 30 large companies that make up the Dow Jones industrial average. Exxon Mobil Corp. rose 1 percent.
Higher fuel costs hurt airline stocks. Delta Air Lines Inc., American Airlines parent AMR Corp., United Continental Holdings Inc. and US Airways Group Inc. all dropped by 5 percent or more.
Investors drove into the relative safety of Treasury notes, pushing their prices higher and lowering their yields. The yield on the 10-year Treasury note fell to 3.46 percent from 3.59 percent late Friday.
Benchmark West Texas Intermediate crude for April delivery jumped $5.71, or 6.4 percent, to settle Tuesday at $95.42 per barrel.
Brian Bethune, an economist at IHS Global Insight, said a $10 rise in the price of oil subtracts roughly 0.4 percentage point from economic growth. An increase to $150 or $160 a barrel could knock the economy into a recession, Bethune and other economists say.
Higher oil prices also pinch U.S. consumers by pushing up the price of gas. “This puts a damper on consumer optimism, which is really critical at this stage of the recovery,”said Alan Gayle, senior investment strategist for Ridge Worth Investments.
Wal-Mart Stores Inc. fell 3 percent after revenue at stores open at least a year fell for the seventh-straight quarter. That raised worries about the company’s ability to turn around its U.S. business this year.
Barnes & Noble Inc. fell 14 percent after the bookseller said its net income fell 25 percent. The company also suspended its dividend and said it would not forecast its fourth quarter or full-year earnings after last week’s bankruptcy filing by Borders Group.
Falling stocks outnumbered rising ones 9-to-1 on the New York Stock Exchange. Consolidated volume was 5.5 billion shares.
Information for this article was contributed by Rita Nazareth and Nikolaj Gammeltoft of The Associated Press.
Business, Pages 26 on 02/23/2011