NEW YORK (AP) - Wall Street gave up more ground at the start of the third quarter Tuesday, with stocks falling on investors' ongoing concern about the damage rising oil prices will do to the economy. A report on the manufacturing sector in June gave the market a brief lift, but the good mood vanished when investors saw that companies are paying higher prices for fuel and raw materials.
Treasury prices soared as investors again fled to the safety of government debt.
Crude oil held above $142 a barrel on the New York Mercantile Exchange after briefly soaring to a record high of $143.67 on Monday amid concerns about tensions in the Middle East and a weakening dollar.
The concern on Wall Street is that higher energy prices will hurt consumer spending, which accounts for more than two-thirds of the U.S. economy. However, stocks rebounded from their lows of the session after a trade group said manufacturing grew in June at a higher-then-expected rate.
The Institute for Supply Management's report on manufacturing was at first a pleasant surprise, showing that the sector grew rather than contracted last month. The ISM's manufacturing index rose to 50.2 from 49.6 in May. It beat economists' prediction of a reading of 48.7, according to the consensus estimate of Wall Street economists surveyed by Thomson Financial/IFR. A reading above 50 signals growth.
A closer look at the report showed that the prices companies paid for materials last month continued to grow, while demand for their products is shrinking. The overall gain came on higher exports.
Taken as a whole, the ISM report turned out to be a disappointment.
Meanwhile, the Commerce Department reported another drop in construction spending due to the continuing slump in housing. The department said construction spending fell 0.4 percent, slightly less than economists' forecasts.
The Dow Jones industrial average fell 55.61, or 0.23 percent, at 11,294.40. The major indexes ended the first half of 2008 with double digit declines.
The Standard & Poor's 500 index gave up 4.58, or 0.36 percent, to 1,275.42; and the Nasdaq composite index dropped 8.75, or 0.38 percent, to 2,284.23.
The drop in the U.S. follows a steep decline in European markets. In afternoon trading, Britain's FTSE 100 fell 2.47 percent, Germany's DAX index fell 1.94 percent, and France's CAC-40 fell 1.96 percent.
Bonds were again the beneficiaries of investors' flight from Wall Street. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.90 percent from 3.98 percent late Monday.Wall Street is paring its losses after news of a surprising upturn in manufacturing.
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