Sector Wrap: Oil Services Shares Weaken

The Philadelphia Oil Service Sector Index, which includes drilling contractors and other service companies, fell 9.73, or 3.7 percent, to close at 253.15.

Broader markets, which had been up for most of the day, deteriorated at the end of session after a Federal Reserve official suggested inflation worries could jeopardize future interest rate cuts. The Dow Jones industrial average fell 65.03 to 12,200.10.

Oil futures, meanwhile, continued their retreat after the government reported unexpectedly large jumps in U.S. crude oil and gasoline supplies. Light, sweet crude for March delivery fell $1.27 to settle at $87.14 a barrel on the New York Mercantile Exchange.

Allis-Chalmers Energy Inc. tumbled to its lowest point in more than two years after Wachovia downgraded the stock to "Market Perform" from "Outperform."

Analyst Brad Handler said the small oilfield service company's "vision is clearly expressed and logical." But he cautioned that its "ambitious strategy, management missteps ... and the scramble required to make the most of the challenging near-term environment in the U.S. (including the Gulf of Mexico) make us uncomfortable with near-term risk/reward."

Allis-Chalmers shares fell 79 cents, or 7.4 percent, to $9.89.

Other big decliners included National Oilwell Varco Inc., which reported its fourth-quarter profit rose by more than half to beat Wall Street estimates. Investors, however, seemed to zero in on weak sales in North America and expansion costs overseas.

National Oilwell shares fell $4.15, or 6.7 percent, to $57.85.

Nabors Industries Ltd., primarily a land-based driller, was among the sector's few gainers after Deutsche Bank said the company's most recent quarterly figures suggest the weak U.S. land market may be stabilizing.