Stocks fall as oil prices soar to $122 a barrel

Extending its sharp ascent, crude oil climbed past $122 a barrel on the New York Mercantile Exchange as traders reacted to the weakening U.S. dollar and the possibility of supply threats. In late morning trading, it was up $1.92 at $121.89 a barrel on the New York Mercantile Exchange.

Investors' confidence has been eroding, as high oil prices threaten to weigh on consumers' discretionary spending well into the summer.

"We certainly seem to be waking up to stubbornly high energy prices," said Arthur Hogan, chief market analyst at Jefferies & Co. "For the first time in a couple of weeks, it seems to be grabbing all the headlines."

He added that investors were also hesitant with computer networking equipment maker Cisco Systems Inc. scheduled to release quarterly results after the market closes.

The market pared steeper earlier losses, however, as Fannie Mae shares rebounded to rise 75 cents, or 2.7 percent, to $29.04 on the belief that the government-sponsored mortgage company may have seen the worst of the credit crises. Fannie Mae on Tuesday reported a larger-than-expected first-quarter loss of $2.2 billion, and plans to lower its dividend and raise $6 billion in additional capital.

In late morning trading, the Dow Jones industrial average fell 51.22, or 0.39 percent, to 12,918.32.

Broader stock indicators also pulled back. The Standard & Poor's 500 index fell 1.70, or 0.12 percent, to 1,405.79, and the Nasdaq composite index fell 0.62, or 0.03 percent, to 2,463.50.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, dipped to 3.81 percent from 3.87 percent late Monday.

In recent weeks, stronger-than-expected results from companies outside the battered financial and housing sectors helped the stock market rebound late last week to levels not seen since early January.