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Oil fell towards $70 a barrel on Wednesday after U.S. government inventory data showed a build in crude stocks and weak economic data raised doubts about oil demand recovery in the world's largest energy consumer.
U.S. light, sweet crude fell 81 cents to $70.61 a barrel, giving away some of the gains that helped oil rise 13% since late last week.
U.S. crude inventories rose more than expected last week as refinery runs eased, while distillate stocks showed a surprise draw, according to weekly data from the U.S. Energy Information Administration (EIA) released on Wednesday.
Crude stockpiles in the world's top consumer rose by 1.7 million barrels in the week to July 31, against forecasts for an 800,000-barrel build as refinery utilization fell by 0.1 percentage point to 84.5%.
"The big build on crude caught some people by surprise and shows overall weakness in the economy and the unwinding of economic optimism. Nothing in the numbers was very bullish," said Phil Flynn, analyst at PFGBest Research in Chicago.
The EIA data followed inventory numbers on Tuesday from the American Petroleum Institute, which showed crude stocks fell 1.5 million barrels last week but gasoline stocks rose by a further 2.1 million barrels.
Oil was already lower before the release of inventory figures as doubts over economic recovery and demand for fuel resurfaced after weak U.S. services sector data depressed stock markets both sides of the Atlantic.
Expectations that a turnaround in the global economy could lift sagging oil demand has helped send crude up from lows below $33 a barrel in December, with energy traders keeping an eye on equities markets for signs of an economic rebound.
Investors were awaiting news from a meeting between trade representatives and Britain's financial powers, the UK Financial Services Authority (FSA) and the UK Treasury, which comes before a third Commodity Futures Trading Commission (CFTC) hearing in Washington over how to rein in speculation.
The UK meeting will discuss market transparency and efficiency, according to the FSA invitation to oil market participants, a copy of which has been seen by Reuters.
Energy traders also were watching an area of thunderstorms in the Atlantic Ocean several hundred miles southwest of the Cape Verde Islands associated with a tropical wave. The U.S. National Hurricane Center said it had less than a 30% chance of becoming a tropical storm.
The Nasdaq rallied Tuesday, while the broader market was little changed, after the government said 10 of the largest banks could pay back loans and after a positive Treasury auction cooled worries about rising borrowing costs.
The Dow Jones industrial average (INDU) lost 1 point. The S&P 500 (SPX) index added 3 points, or 0.4%.
The Nasdaq composite (COMP) added 18 points, or 1%, with technology shares rising after chipmaker Texas Instruments (TXN, Fortune 500) boosted its quarterly sales and earnings outlook late Monday.
Stocks were mixed after the government said 10 banks were well-enough capitalized to pay back a collective $68 billion in loans. But stocks moved to the highs of the session after a strong response to the government's auction of $35 billion in three-year securities.
The combination of the auction results and the boost from Texas Instruments was helping stocks Tuesday, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
"TI really increased their guidance, which was good, but we're going to need to see more fundamental news like that to keep us moving higher after a big thee-month rally," he said.
Stocks have been on the rise since early March, with the Dow having jumped more than 32%, the S&P gaining 39% and the Nasdaq surging 46%, as of Monday's close.
That marked the Dow's best 3-month run since 1982 and the S&P 500's best run since the 1930s.
The gains have been sparked by a series of not-as-bad-as-expected economic reports and growing investor sentiment.
Although stocks have been drifting a bit and could see more of a pullback over the next few weeks, the tone remains positive, said Steven Goldman, market strategist at Weeden & Co.
"Overall, I think stocks will continue to find buyers on pullbacks and the trend will remain up," he said.
Goldman said that historically, stocks tend to gain six months ahead of the end of a recession and for the first three months after a recession is over. Using data that goes back to 1901, he found that the S&P was always higher in the three months after a recession ended.
The April trade balance from the Census Bureau is due Wednesday morning before the start of trade. About an hour into the session, the weekly oil inventories report is due, from the Energy Information Administration.
Wednesday afternoon brings a report on the May treasury budget and also the Federal Reserve's "Beige Book" reading on economic activity.
Banks: The U.S. government said Tuesday morning that 10 banks that received TARP loans last fall can repay a total of $68 billion to the government.
The news shows that the fear of an implosion has subsided and that the risk factor in financial markets has diminished, Goldman said.
Morgan Stanley (MS, Fortune 500), American Express (AXP, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), Bank of New York Mellon (BK, Fortune 500), BB&T (BBT, Fortune 500), Capital One (COF, Fortune 500), Northern Trust (NTRS, Fortune 500), State Street (STT, Fortune 500) and US Bancorp (USB, Fortune 500) have confirmed that they are allowed to repay loans.
But only AmEx, BB&T and Capital One shares posted solid gains.
Banks that were stress-tested earlier this year should undergo another round of tests, a U.S. watchdog group said Tuesday.
The Congressional Oversight Panel said that recent signs that the recession could be worsening show the tests did not go far enough. In particular, the group pointed to the May employment report, which showed a slower pace of job losses but also that the unemployment rate rose to a 26-year high of 9.4%.
On the move: The gains in Texas Instruments spread to other large chip makers, including Intel (INTC, Fortune 500) and Advanced Micro Devices (AMD, Fortune 500).
The Philadelphia Semiconductor (SOX) index rose 4.5%.
General Motors (GMGMQ) rallied 24% after it said that the former chairman and CEO of AT&T will be its new chairman when it emerges from bankruptcy later this summer.
The Dow ended near unchanged, as strength in tech and commodity shares was tempered by weakness in aerospace and defense names Boeing (BA, Fortune 500) and United Technologies (UTX, Fortune 500).
Market breadth was positive. On the New York Stock Exchange, winners beat losers three to two on volume of 1.06 billion shares. On the Nasdaq, advancers topped decliners eight to five on volume of 2.17 billion shares.
Chrysler: The Supreme Court delayed the sale of Chrysler's assets to Italian automaker Fiat, in a late-Monday move that threw a wrench into the automaker's plans for a quick exit from bankruptcy.
Under terms of the agreement, Fiat can ditch the deal if it is not finished by June 15. However, the company said Tuesday that it won't walk away from Chrysler.
In addition, Chrysler returned to bankruptcy court Tuesday to try to get a judge to approve the closing of 789 of its dealerships.
0:00 /5:11Getting tough on Treasury
Economy: Wholesale inventories fell 1.4% in April, the Census Bureau reported, after falling 1.8% in the previous month. Economists surveyed by Briefing.com expected a decline of 1.1%, on average.
Bonds: Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 3.86% from 3.88% late Monday. Treasury bond prices and yields move in opposite directions.
Treasury sells $19 billion of 10-year debt tomorrow and $11 billion of 30-year bonds on Thursday.
The recent rise in the 2-year note has left the security nearly 1 percentage point above the fed funds rate, raising bets that the Federal Reserve will have to raise interest rates before the end of the year, something stock investors don't like.
And the spike in the 10-year has caused worries that it may stunt a burgeoning recovery, as the longer-term bond yields are tied to mortgage rates. Higher mortgage rates could dissuade homebuyers at a time when the housing market is just starting to stabilize in some areas.
Other markets: In global trading, Asian markets ended lower and European markets ended mixed.
In currency trading, the dollar fell versus the euro and the yen.
U.S. light crude oil for July delivery rose $1.92 to settle at $70.01 a barrel on the New York Mercantile Exchange, settling above $70 a barrel for the first time since November.
COMEX gold for August delivery rose $2.20 to settle at $954.70 an ounce.
Stocks fell sharply Thursday as enthusiasm about signs of economic improvement faded and investors were taken aback by a downgrade of the U.K. credit outlook.
The Dow Jones industrial average (INDU) and the S&P 500 (SPX) index were both down about 1.5% at midday. The Nasdaq composite (COMP) fell 1.8%.
Energy stocks slumped as oil prices fell more than 2% but remained at a 6-month high. Shares of financial services companies, which have lead the market in recent sessions, also tumbled.
"I think the market will be choppy for the next few months," said Ron Kiddoo, chief investment officer at Cozad Asset Management. He said Thursday's "malaise" could be a reflection of low volume, with many market participants absent ahead of the holiday weekend.
Stocks finished Wednesday's session lower after the Federal Reserve trimmed its 2009 economic growth targets and raised its forecast for unemployment. The central bank's dour outlook called into question the economic optimism that had lifted the market over the last few months.
"We're starting to see numbers that aren't quite as damaging," Kiddoo said. "But I don't think the market will trade to the upside until you start to see real growth."
British downgrade: Ratings agency Standard & Poor's lowered its outlook for the U.K. to "negative" from "stable."
S&P said its revision was based on the possibility that the country's debt burden could reach 100% of its gross domestic product, despite the U.K. government's "further fiscal tightening."
"The downgrade of Great Britain by S&P certainly damped enthusiasm," said Peter Cardillo, chief market economist at Avalon Partners.
Economy: The Labor Department reported that initial jobless claims declined by 12,000 in the week ending May 16.
The number of people filing for first-time jobless benefits totaled 631,000 last week, slightly more than expected. But those filing claims on an ongoing basis rose to 6.6 million, an all-time high.
Separately, the Conference Board's reading of leading economic indicators, which predicts economic conditions six to nine months in the future, rose 1% in April -- slightly better than the 0.8% analysts' expected.
The Federal Reserve Bank of Philadelphia said its index of manufacturing activity in the mid-Atlantic region improved to negative 22.6 in May from negative 24.4 in April. Economists surveyed by Briefing.com had expected the index to improve to negative 18.
World markets: Investors around the world were in a downbeat mood. In Asia, most shares finished lower. European stocks tumbled in morning trading, following S&P's downgrade of the U.K. outlook.
0:00 /03:50Banks still key to recovery
Companies: Auto finance firm GMAC is poised to receive a second bailout from the Treasury, according to the Detroit News. The newspaper said the company is due to receive $7.5 billion more in aid.
In one of the first Nasdaq initial public offerings of the year, OpenTable, which operates a restaurant reservation system, raised $60 million, one of the deal's underwriters told Reuters. The company priced its shares at $20 each, which was higher than expected, and nearly 40% to $27.90 in late morning trading.
Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.26% from 3.19% Wednesday. Treasury prices and yields move in opposite directions.
Other markets: Oil slipped from its Wednesday high, but still continued to trade above $60 a barrel. The price of oil dropped $1.46 a barrel to $60.58
In currency trading, the dollar rose versus major international currencies, including the euro, the yen and the British pound.
COMEX gold for June delivery rose $7.60 to $945 an ounce.
