Stocks decline on consumer survey, earnings and inflation

The Reuters/University of Michigan consumer sentiment index fell to 62.6 for April from 69.5 a month earlier. It was the lowest reading since the early 1980s as Americans contended with rising energy and food prices. Consumers' flagging mood is worrisome for Wall Street because consumer spending accounts for about 70 percent of U.S. economic activity.

Investors were also unimpressed by Microsoft's forecast for the current quarter and its revenue figures.

Oil prices, meanwhile, jumped on a series of troubling events overseas, including word from the U.S. Navy that a ship under contract with the Navy fired flares and warning shots at two small boats of unknown origin in the Persian Gulf. Oil was up earlier following an attack on a pipeline in Nigeria and a looming refinery strike in Scotland; light, sweet crude shot as high as $119.50 a barrel on the New York Mercantile Exchange before settling back to hover just below $119 a barrel.

Oil's advance raises the specter of higher inflation, which could be a further deterrent to consumer spending.

"It looked like the market wanted to rally this morning," said Neil Massa, equity trader at John Hancock Funds, adding that news of the incident in the Gulf unnerved investors.

"That's what drove crude up and that's what's taking us down," he said, referring to the stock market. "I think it rally shows how the easily the energy market can go back up again."

In midday trading, the Dow fell 51.13, or 0.40 percent, to 12,797.82 after earlier being down more than 100 points.

Broader stock indicators fell. The Standard & Poor's 500 index declined 1.77, or 0.13 percent, to 1,387.05, and the Nasdaq composite index fell 26.25, or 1.10 percent, to 2,402.67.

Declining issues narrowly outpaced advancers on the New York Stock Exchange, where volume came to 561.6 million shares.

Bond prices fell ahead of next week's meeting of the Federal Reserve's interest rate committee. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.86 percent from 3.83 percent late Thursday.

Beyond spikes in oil, the market is concerned about corporate news. Craig Hester, chief executive at Hester Capital Management in Austin, Texas, said stocks will likely fluctuate as investors digest the flood of corporate results from this week and next as well as ahead of the Fed decision.

"The big risks I see for stocks right now are earnings," he said, adding that next week should help give investors a better idea about the state of the economy with reports due on the nation's gross domestic product and employment.

In corporate news, Microsoft fell $2.02, or 6.4 percent, to $29.78 after its first-quarter report. The tech leader said after the closing bell Thursday that worldwide sales next year should offset weakness in the U.S. economy.

Goodyear Tire & Rubber Co. rose $1.70, or 6.2 percent, to $28.95 after posting a first-quarter profit amid increased revenue. The tiremaker, which reported a loss for the same period a year earlier, said it focused on higher-priced tires and international markets.

American Express Co. rose $1.49, or 3.3 percent, to $46.67 after reporting its first-quarter earnings fell 6 percent as more U.S. cardholders failed to make their payments. The credit card lender's total provisions for credit losses jumped 48 percent from a year earlier to $1.27 billion. However, the company said cardholders are continuing to spend and that strength abroad has helped make up for troubles in the U.S.

The Russell 2000 index of smaller companies fell 2.39, or 0.33 percent, to 714.68.

Overseas, Japan's Nikkei stock average closed up 2.28 percent. Britain's FTSE 100 rose 0.67 percent, Germany's DAX index advanced 1.10 percent, and France's CAC-40 rose 0.99 percent.

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