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WORLD> America
Wall Street tumbles as oil prices surge
(Agencies)
Updated: 2008-06-12 06:58

"There are not a lot of positive things you can point to right now," said Michael Binger, portfolio manager at Thrivent Investment Management in Minneapolis. "We have commodity prices higher, inflation up, the prospect of the Fed raising interest rates instead of lowering, a worldwide slowdown and an economic slowdown in the U.S."

Binger noted that one weak spot on Wall Street — the financial sector — is now faced with a new worry of higher interest rates while still trying to navigate a tight credit market and fallout from bad bets on now-souring home loans.

"If the Fed starts to raise rates because of inflation not because the economy is good, that is not a positive on the financial stocks," he said.

Oakbrook's Sampson said her reading from the Beige Book was that there likely won't be another reduction in interest rates, but that she didn't see anything dire enough to forecast a rate hike at the Fed's next meeting, because rising prices appear to still be "fairly well confined to commodities."

"Unless we get some kind of numbers between now and the meeting at the end of the month that tell you inflation is really out of control," Sampson said she expects any rate hike is further down the line.

In corporate news, Corporate Express NV, the Dutch office supplies distributor, accepted a sweetened $2.7 billion buyout bid from U.S. office supplies retailer Staples Inc. Staples rose $1.23, or 5.3 percent, to $24.38.

Lehman Brothers Holdings Inc. fell for the fourth straight session. The company reported earlier this week that it lost more than $2.8 billion for the fiscal second quarter ended May 31 and announced plans to raise $6 billion in capital to help its balance sheet. The stock declined $3.75, or 13.6 percent, to $23.75.

The Russell 2000 index of small companies fell 14.74, or 2.01 percent, to 717.88.

Declining issues outnumbered advancers by more than 4 to 1 on the New York Stock Exchange, where consolidated volume came to 4.67 billion shares, compared with 4.51 billion shares traded Tuesday.

Overseas, Japan's Nikkei 225 average closed 1.16 percent higher. Britain's FTSE 100 index closed down 1.78 percent, Germany's DAX 30 index lost 1.78 percent, and the French CAC-40 index fell 2.10 percent.

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