U.S. Stocks Hit By Oil Spike; Weekly Gains Still In Sight

NEW YORK (MarketWatch) -- U.S. stocks fell on Friday for the second day in five, but were still headed to weekly gains, as crude-oil prices broke to another record high and consumer confidence slumped, overshadowing a surprising rise in April home construction.

"People are nervous about oil," said Tim Speiss, head of wealth management at Eisner LLP. "If you're spending a lot of money now as a consumer for housing, transportation, food and fuel, and then you've seen the value of your home decline and your short-term investment portfolio and 401(k) decline, you might be having a melancholy moment."

In afternoon trading, the Dow Jones Industrial Average declined 58.54 points, or 0.5%, to 12,934.12, putting it on pace for a gain of 1.5% this week.

Of the Dow's 30 component stocks, 24 traded in the red, led by American Express Co. , off 2.8%, and General Motors Corp. , down 2.5%.

Oil giants Chevron Corp. and Exxon Mobil Corp. led the Dow's winners, with Chevron up 1.2% and Exxon up 0.9%. Their advances coincided with a rise in crude futures, which rallied to a fresh high of $127.82 a barrel, before retreating a bit to $126.60 -- still up $2.48 a barrel, or 2%. .

With a barrel of oil now well into the triple-digits, cheap oil is part of the past, analysts say.

In looking to the second half of the year, Goldman Sachs forecast a likely rise to an average $141 a barrel, making the forecast on the same day as Saudi Arabia declined to raise its output. .

Prices were also climbing at the pumps, with regular unleaded gasoline up a penny a gallon in the last day to a new record average of $3.79, the Daily Fuel Gauge Report from AAA said.

Not surprisingly, energy led advancing sectors on the S&P 500, up 1.6%, following by utilities, which gained 0.6%. The consumer-discretionary sector fronted industry group decliners, off 1.7%%, followed by financials, down 1.6%.

"The market is keying off of the right things. What's needed is for a top to form in crude, and it should take some time for that distribution to occur," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

The S&P 500 was recently off 4.74 points, or 0.3%, to 1,418.83, readying the index for a 2.2% advance from a week earlier.

After four consecutive days of gains, the technology-heavy Nasdaq Composite dropped 16.2 points, or 0.6%, to 2,517.53, which would leave it with a 2.9% gain for the week.

Exchange volume came to 867.6 million on the New York Stock Exchange, with declining stocks outrunning those advancing by 8 to 7. On the Nasdaq, volume reached 694.8 million and declining stocks topped those rising by a 9-to-5 ratio on the Nasdaq.

Confidence erodes

U.S. consumer sentiment declined further in May, hitting a reading of 59.5 in the preliminary report from Reuters/University of Michigan. This marked the weakest seen since June 1980.

Investors initially seemed sanguine about a government report that estimated home builders broke ground on 8.2% more homes in April, led by a spike in multi-family homes. .

Speiss, the head of wealth management at Eisner LLP, however, didn't find the housing data all that positive.

"The number's great -- new starts are up -- but we have to look at inventory, and my sense is they are possibly at all-time highs," Speiss said.

The surge in crude prices bolstered gold's appeal as an inflation hedge, with the precious metal climbing back to $900.10 an ounce, up $20.10, or 2.3%, in action on the New York Mercantile Exchange. .

Treasury prices fell, sending yields higher, with the benchmark 10-year note at 100 13/32, its yield climbing to 3.825%.

The dollar slipped against major currency rivals, with the dollar index, which compares the U.S. currency against six others, recently at 72.79, down from 73.340 late Thursday.

By Kate Gibson