Blue Chips Sink on Oil Worries, Lower Forecasts

A grim combination of higher oil prices and lowered outlooks from companies including Colgate-Palmolive and Unilever sent stocks sliding Monday. Blue chips bore the brunt of the selling.

The negative news from Colgate-Palmolive, its first profit warning in nearly a decade, and a brokerage downgrade of Citigroup pressured the Dow Jones industrials. Trading was moderate, as many investors stuck to the sidelines in anticipation of today’s meeting of Federal Reserve policymakers. But analysts noted unusually strong performance among semiconductor shares despite forecasts of slower growth from chipmakers. The SOX semiconductor index surged 2.9%.

“It seems a contrarian view is developing in the tech sector. There’s a feeling that they’re probably oversold, and as a result we’re seeing investors having second thoughts about unloading them,” said Peter Cardillo, chief strategist with S.W. Bach & Co. “Unfortunately, the market as a whole is going to continue to live with this oil issue; there’s no indication prices are going to collapse anytime soon.”

The Dow was down 79.57 points, or 0.8%, at 10,204.89, after a drop of 0.3% last week.

The broader gauges also fell. The tech-dominated Nasdaq composite index, buoyed by chip stocks early in the session, gave back those gains and closed down 2.02 points, or 0.1%, at 1,908.07, after a weekly gain of 0.8%. The Standard & Poor’s 500 index shed 6.35 points, or 0.6%, to 1,122.20, after advancing 0.9% last week.

Declining issues outnumbered advancers by more than 3 to 2 on the New York Stock Exchange.

Energy costs and earnings outlooks have competed for investors’ focus in recent weeks, but attention returned to interest rates ahead of the Fed’s Open Market Committee meeting today.

Most economists agree that the Fed will continue to tighten short-term interest rates at a measured pace by raising the federal funds rate another quarter of a percentage point to 1.75%. But U.S. Treasury yields fell Monday, as some investors bet the Fed might be forced to acknowledge recent economic weakness in this week’s policy statement -- perhaps hinting at a pause in interest rate hikes down the line.

The yield on the 10-year note fell to 4.06%, down from 4.11% on Friday.

Anxiety about global oil supply sent crude futures higher as beleaguered Russian oil giant Yukos announced plans to stop shipments to China. The latest event to agitate the oil market came just days after Hurricane Ivan menaced rigs and threw tankers off course in the Gulf of Mexico, cutting daily production in the region by half. Crude rose 76 cents a barrel, to $46.35.

In other market highlights:

* Colgate-Palmolive fell 11%, or $6.10, to $48.23, after the consumer products giant warned that its second-half results would be lower than expected because of higher marketing spending and rising packaging and raw material costs. Dutch consumer products maker Unilever’s U.S. shares dropped $2.78, to $58.16, after reducing its outlook for the year, citing weak consumer confidence in Europe and tough competition in Asia. Procter & Gamble, the top U.S. maker of household products, posted sympathetic declines, falling $1.88 to $54.38.

* New York Times Co. lost 64 cents to $40.16 after the newspaper publisher lowered its earnings forecast for the year and warned that results for the current quarter would fall below estimates because of declining revenue growth in September.

* Citigroup fell $1.55 to $45.40 days after regulators in Tokyo announced they would shut down the company’s private banking business in Japan after finding “severe legal violations.”

* Altria Group, the parent of Philip Morris USA, and other cigarette makers were lower. The U.S. government is asking a judge to order five tobacco companies, including Philip Morris, to forfeit an unprecedented $280 billion in profits, invoking a racketeering law that the industry argues authorizes no penalty at all. The companies go on trial today in Washington.

Altria dropped $1.40 to $47.08. Reynolds American, the No. 2 U.S. cigarette maker, shed $2.49 to $69.89 and the U.S. shares of British American Tobacco lost 42 cents to $28.71.

* Chip stocks gained after a Sanford C. Bernstein & Co. analyst recommended investors add to their holdings of companies that have reduced their sales or earnings forecasts. Rising inventories and unused production capacity will reduce growth less than investors anticipate, the analyst wrote. Intel rose 33 cents to $20.92 and Texas Instruments gained 65 cents to $22.73.