Wednesday April 2, 6:10 pm ET
By Joe Bel Bruno, AP Business Writer
The major indexes, which spent most of the session in a tight trading range, tumbled after oil prices shot higher in response to the Energy Department's report of an unexpected jump in gasoline demand. That could lead to higher prices at the pump, a troublesome trend given that retail gas prices are expected to rise further as the summer approaches and put more financial pressure on consumers.
Consumer spending, which makes up about two-thirds of the U.S. economy, is watched closely by the Federal Reserve. Earlier Wednesday, Fed Chairman Ben Bernanke said he expects the economy to contract in the first half -- a trend that would mean the U.S. is in a recession.
Crude oil rose $3.85 to settle at $104.83 a barrel on the New York Mercantile Exchange.
"The oil uptick took away some of the optimism that we've seen recently," said Richard Cripps, chief market strategist for Stifel Nicolaus. "Higher gasoline price would mean less in the pocket for Americans, and there's also continued worries about a recession."
The credit crisis and weak economy have sent stocks tumbling over the past six months. But the market had shown some renewed confidence that the worst of the credit problems might be behind Wall Street; that upbeat sentiment sent stocks up nearly 400 points on Tuesday, the first day of the second quarter.
Some of the pullback late Wednesday also was pinned on profit taking after that big advance.
The Dow Jones industrials fell 48.53, or 0.38 percent, to 12,605.83 after changing direction several times.
Broader market indexes also fell. The Standard & Poor's 500 index fell 2.65, or 0.19 percent, to 1,367.53 while the Nasdaq composite index fell 1.35, or 0.06 percent, to 2,361.40.
Treasury bonds moved slightly lower as investors weighed Bernanke's testimony before Congress; fixed income investors were focused on hints from Bernanke that the central bank might be less aggressive about lowering interest rates. The 10-year Treasury note's yield, which moves opposite its price, rose to 3.59 percent from late Tuesday's 3.55 percent -- then edged up to 3.60 percent in after-hours trading.
The dollar was mixed against other major currencies, while gold fell slightly.
Investors paid close attention to what Bernanke had to say about a number of problems facing the economy -- including tightening credit markets, a slumping housing market, and the near collapse of investment bank Bear Stearns Cos. Stocks initially rose after the Fed chairman said he doesn't believe the nation's big investment banks face the possibility of a collapse.
And, his warning about a potential recession was really not a shock to investors who trudged through one of the more difficult first quarters in years. Kim Caughey, equity research analyst at Fort Pitt Capital Group, said she didn't believe Bernanke had "anything new to say" and was simply reiterating previous thoughts.
"This is evidence that he is being more transparent -- there are no big bombs dropping during congressional testimony," she said.
Though numerous economists have said they believe a recession is under way, Fed officials generally are cautious when describing the economy. A recession consists of at least two consecutive quarters of economic contraction and can only be declared in hindsight.
Bernanke also outlined some of the steps taken in the past few weeks to help boost the financial positions of the nation's biggest investment banks. He offered that a failure of Bear Stearns would have been difficult to contain, and that was one reason why the central bank helped arrange the investment bank's sale to JPMorgan Chase.
JPMorgan Chase fell 38 cents to $46.24, while Bear Stearns rose 1 cent to $10.86.
Richard Sparks, a senior equities analyst at Schaeffer's Investment Research, called Wednesday's market performance "a breather." He said stocks might begin to percolate higher if first-quarter earnings come in better than expected, and should the credit markets remain stable.
"The market did a lot of work (Tuesday) -- it makes sense that it needs a bit of a rest here before resuming on, if it can," he said.
Investors also weighed fresh economic data that indicated factory orders in the U.S. have fallen for a second straight month. The Commerce Department said orders dropped by 1.3 percent in February, about double the downturn that economists had been expecting.
In corporate news, Best Buy Co. said its fourth-quarter profit slipped 3 percent as customer traffic slowed after the holidays. But, the electronics retailer still beat Wall Street estimates, and shares rose 47 cents to $43.94.
The Russell 2000 index of smaller companies rose 1.62, or 0.23 percent, to 712.27.
Advancing issues barely outpaced decliners on the New York Stock Exchange, where consolidated volume came to 4.19 billion shares, compared to 4.65 billion on Tuesday.
Overseas, Tokyo's Nikkei index closed up 4.21 percent. There were gains in European stocks too -- London's FTSE 100 rose 1.08 percent, Frankfurt's DAX advanced 2.84 percent and Paris' CAC 40 gained 0.94 percent.