US hit by fears that worst is not over

US stocks tumbled yesterday, halting a four-day winning streak, as falling oil prices hit energy shares, while less upbeat economic reports rekindled worries about recovery prospects.

Oil prices slipped more than 3 per cent after a surprise build-up in inventories. Shares of energy companies, including Chevron off 1.6 per cent, were top drags, along with other natural resource companies and big manufacturers such as Boeing, down almost 2 per cent.

Investors took a one-two punch from data showing the vast service sector contracted for the eight straight month in May and from a report showing employers axed 532,000 private-sector jobs last month.

The data, which fell short of consensus expectations, signalled the revival in consumer and business spending, crucial for profit growth, will take longer than previously thought.

The Dow Jones industrial average dropped 65.63 points, or 0.75 per cent, to 8,675.24. The Standard & Poor’s 500 Index shed 12.98 points, or 1.37 per cent, to 931.76. The Nasdaq Composite Index declined 10.88 points, or 0.59 per cent, to 1,825.92.

Since the stock market’s run-up from the 12-year low of early March investors have been eager to get more definitive signs that the recession is abating, but yesterday’s economic reports tempered some of the recent optimism.

Federal Reserve Chairman Ben Bernanke said in an appearance before the House Budget Committee he expected to see “some positive growth later this year” but not robust growth.

Chevron shares fell 1.6 per cent to $68.26, while Exxon Mobil shares declined 1.2 per cent to $72.08. The S&P energy index fell 3.3 per cent.

US front-month crude CLc1 settled down $2.43, or 3.5 per cent, to $66.12 a barrel after government data showed a surprise build-up in inventories in the recent week.

Commodities companies were also hit as the dollar strengthened more than 1 per cent against a basket of currencies, depressing the value of commodities denominated in the US currency