Stocks Are Volatile as Oil Prices Fall

Wall Street was in an uproar on Tuesday as stocks churned, oil plummeted, and policy makers issued a darker outlook on the economy.

The Dow Jones industrials, down 200 points after the opening bell, spent the day slipping between positive and negative territory. A late afternoon slide sent the blue-chip barometer to a 95 point deficit at the close. The broader Standard & Poor’s 500-stock index followed a similar trajectory and ended down about 1.1 percent.

The dizzying day came alongside a big batch of economic developments, including pessimistic testimony from Ben S. Bernanke, the Federal Reserve chairman, who warned that “significant” economic risks remained and that inflation would accelerate.

Meanwhile, the dollar fell to a new low against the euro, General Motors said it would slash jobs and suspend its dividend, and a report showed that consumer spending slowed in June more than economists had anticipated.

The bulk of the news seemed bleak, and stocks fell sharply in morning trading. But shortly after 10 a.m., as Mr. Bernanke was speaking to Congress, investors were forced to do a double-take: oil prices, previously trading at record highs, had suddenly plunged by $10 a barrel.

“The only times you’ve seen moves like that are in the first gulf war,” Ric Navy, an analyst at BNP Paribas, said.

The surprise move led to a mid-morning rally in the stock market, which surged back toward positive territory. Oil closed down $6.51 to $138.67 a barrel.

Few analysts could identify the impetus for the drop. “You can talk to all of the experts; a lot of people just can’t decide what’s going on,” Mr. Navy said.

But while the overall stock market moved higher on the oil news, the pickup failed to help Fannie Mae and Freddie Mac, shares of which fell more than 20 percent, just days after the Treasury Department laid out an ambitious plan to prop up the mortgage finance giants.

The dollar also fell to a new record low against the euro on worries that the American government has taken on an enormous share of the nation’s financial risks.

As the afternoon session wore on, Wall Street remained focused on Washington, where two distinct views of the economy were being presented simultaneously.

Mr. Bernanke cautioned that inflation may accelerate, even as economic growth remains sluggish. While he stopped short of calling a recession, Mr. Bernanke offered a strongly worded warning that “significant” economic risks remained.

The Fed chair’s gloomy assessment was reinforced by a pair of government reports released Tuesday morning, which showed that retail sales were nearly stagnant in June, even after Americans received tax rebates from the government’s stimulus plan. Meanwhile, producer prices rose more than expected, a sign of accelerating inflation.

But President Bush, in a news conference on the economy, said that the economy was resilient.

Responding to a question about the fragility of the nation’s banks, the president noted that investments up to $100,000 are insured by the federal government.

Mr. Bush also said he had not decided whether to push for a second economic-stimulus package, and probably will not until more is known about the effects of the first one.

The president’s news conference was scheduled to coincide with Mr. Bernanke’s testimony, which served to siphon some attention away from the Fed chief’s bleaker economic outlook.

The president said the government should not bail out private enterprises that stumble, and that the Democratic-controlled Congress should pass housing and energy legislation. He also reiterated his call for off-shore drilling to combat shrinking supplies of American oil.

But even Mr. Bush was forced to admit that Americans were struggling. “The bottom line is this, we’re going through a tough time,” he said.

The trouble in American stocks followed a painful night in overseas markets, and European indexes all closed down.

“The U.S. dollar has come under broad selling pressure amid fear that the U.S. Treasury’s contingency plans for Fannie Mae and Freddie Mac will be drawn upon, leading to further strains in the financial system, prolonging the crisis,” Marc Chandler, a currency strategist at Brown Brothers Harriman, wrote in a note to clients.

General Motors shares rose nearly 6 percent after the company announced more job cuts and a suspension of its dividend. Wachovia, the investment bank, was unchanged after a well-known Wall Street analyst deemed its prospects “bleak.”

In London, the FTSE 100 index fell 2.4 percent, while the Dow Jones Euro Stoxx 50 index, a benchmark of euro zone blue chips, fell 2.29 percent.

The CAC 40 in Paris fell 1.9 percent, and the DAX in Frankfurt fell 1.9 percent. UBS, the big Swiss bank, fell 5.1 percent, Deutsche Bank fell 3.8 percent, and HSBC Holdings, the biggest British bank, fell 2.9 percent.

The Hang Seng index in Hong Kong fell 3.8 percent, taking its loss for the year to 24 percent. The S&P/ASX 200 index in Sydney fell 2.1 percent.

In Tokyo, the Nikkei 225 stock average fell nearly 2 percent, after the Nikkei business daily said Japanese banks including Mitsubishi UFJ Financial Group, the country’s largest, and the No. 2 lender, the Mizuho Financial Group, held roughly $44.3 billion in debt issued by Fannie Mae and Freddie Mac. Mitsubishi UFJ fell 5.3 percent, while Mizuho Financial fell 5 percent.

The dollar was lower against other major currencies. The euro rose to $1.6038 from $1.5932 Monday afternoon in New York, having traded as high as $1.6009, surpassing its intraday record of $1.6018, set April 22. The pound rose to $2.0087 from $1.9958. The dollar fell to 105.23 yen from 106.08 yen and to 1.0068 Swiss francs from 1.0146 francs.

David Jolly in Paris and David Stout in Washington contributed reporting