The Dow Jones industrial average (INDU) lost 0.9%. The broader Standard & Poor's 500 (SPX) index and the tech-heavy Nasdaq composite (COMP) both slipped about 0.7%.

U.S. light crude oil for July delivery settled lower for the third day in a row, down 60 cents to $134.01 a barrel.

But longer-term forecasts are for oil prices to keep pushing higher, which had added to worries about the already-strapped economy. Economic reports on Tuesday showed a surprisingly large rise in the May Producer Price Index (PPI) and a drop in industrial production.

"The PPI minus food and energy was fine, but including it, it was very inflationary and the industrial production report shows you we're not growing," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

He said the economic reports were adding to confusion about the economic outlook, and also about whether the Federal Reserve is likely to lift interest rates when it meets at the end of the summer.

Wednesday brings earnings reports from both Morgan Stanley (MS, Fortune 500) and FedEx (FDX, Fortune 500) before the opening bell.

"Hopefully if Morgan is decent tomorrow, that could help," Rovelli said.

Later in the morning, the government releases its weekly crude oil supply report. Analysts are expecting oil stockpiles to have fallen by 2 million barrels, according to a survey from Platts, an energy research firm.

Gas and oil have climbed to record levels in recent months, and as energy prices have become crucial to the health of the economy, the stock market has been reacting to the oil market.

Wholesale prices rise: The May PPI, a measure of wholesale inflation, rose 1.4% versus forecasts for a rise of 1%, reflecting the spike in food and energy costs. PPI rose 0.2% in April.

The so-called core PPI, which strips out volatile food and energy prices, climbed 0.2%, as expected, after increasing 0.4% in the previous month.

Goldman Sachs beats expectations: The investment bank reported sales and earnings that fell from a year ago, but topped estimates, showing that it continues to avoid the worst of the credit market fallout. Goldman Sachs (GS, Fortune 500) shares fell 1.5%. (Full story).

Other financial shares declined too. American Express (AXP, Fortune 500) slipped after brokerage Friedman Billings reiterated its "underperform" rating, saying that it expects the company to see more losses going forward, due to the strapped consumer, Briefing.com reported.

Bank of America (BAC, Fortune 500), Merrill Lynch (MER, Fortune 500) and Morgan Stanley (MS, Fortune 500) all declined as well.

Among other movers, CME Group (CME), parent company of the Chicago Mercantile Exchange, rallied on news that its purchase of NYMEX has received clearance from the Justice Department.

Best Buy (BBY, Fortune 500) reported a lower quarterly profit that nonetheless topped estimates. The company also reiterated its full-year sales and earnings forecasts. However, investors seemed to take a sell-the-news approach, sending shares 5.3% lower. (Full story).

Market breadth was negative. On the New York Stock Exchange, losers beat winners 3 to 2 on volume of 1.09 billion shares. On the Nasdaq, decliners topped advancers by more than 9 to 5 on volume of 1.84 billion shares.

Other economic news: The morning's other economic data showed continued weakness in the housing and manufacturing sectors.

Housing starts and building permits both fell in May, with starts missing forecasts and permits - a measure of builder confidence - topping estimates. The number of single-family home starts fell to a 17-year low. (Full story).

Additionally, industrial production fell 0.2% in May, according to a Federal Reserve report Tuesday morning that was worse than expected. Capacity utilization also dipped modestly, to 79.4% from 79.6% in the previous month.

Other markets: COMEX gold for August delivery rose 60 cents to settle at $886.90 an ounce.

The national average price for a gallon of regular unleaded gas eased to $4.078 from a record $4.080 the previous day, according to AAA. (Full story).

In currency trading, the dollar fell versus the euro and the yen.

In the bond market, Treasury prices gained, lowering the yield on the benchmark 10-year note to 4.20% from 4.27% late Monday. Bond prices and yields move in opposite directions. 

 

NEW YORK (CNNMoney.com) -- Stocks struggled Tuesday morning as investors digested better-than-expected earnings from Goldman Sachs and Best Buy, a mixed reading on wholesale inflation and another weak housing market report.

The Dow Jones industrial average (INDU) and the broader Standard & Poor's 500 (SPX) index both gained modestly in the early going. The Nasdaq composite (COMP) was barely changed.

Stocks were mixed Monday on weak economic reports and seesawing oil prices. After a strong start Tuesday, stocks turned mixed as investors sorted through the morning's news.

But the tone was improved Tuesday as investors welcomed the improved earnings and weaker energy prices. Readings on housing and wholesale inflation were also in focus.

In the news Tuesday:

Goldman Sachs beats expectations. The investment bank reported sales and earnings that fell from a year ago, but topped estimates, showing that it continues to avoid the worst of the credit market fallout. Goldman Sachs (GS, Fortune 500). (Full story).

Best Buy tops forecasts. The electronics retailer reported quarterly sales and earnings that topped estimates. Best Buy (BBY, Fortune 500). (Full story).

Wholesale prices rise. The May Producer Price Index (PPI), a measure of wholesale inflation, rose 1.4% versus forecasts for a rise of 1%, reflecting the spike in food and energy costs. PPI rose 0.2% in April. The so-called core PPI, which strips out volatile food and energy prices, climbed 0.2%, as expected, after increasing 0.4% in the previous month.

Housing market continues to weaken. Housing starts and building permits both fell in May, with starts missing forecasts and permits, a measure of builder confidence, topping estimates. The number of single-family home starts fell to a 17-year low. (Full story).

Oil prices slide. U.S. light crude oil for July delivery fell 21 cents to $141.40 a barrel on the New York Mercantile Exchange.

Gas prices ease. The national average price for a gallon of regular unleaded gas eased to $4.078 from a record $4.080 the previous day, according to AAA. (Full story). 

The Dow Jones industrial average (INDU) fell 0.3%. The broader Standard & Poor's 500 (SPX) index was little changed and the Nasdaq composite (COMP) gained 0.8%.

Tuesday brings a slew of economic reports, including the May Producer Price Index (PPI), a measure of wholesale inflation, due out before the start of trade.

PPI is expected to have jumped 1% after rising 0.2% in April, according to Briefing.com forecasts. The so-called core PPI, which strips out volatile food and energy prices, is forecast to have climbed 0.2% after growing 0.2% in the previous month.

Other economic reports due Tuesday morning include May housing starts and building permits and readings on factory usage.

Additionally, earnings are due from Goldman Sachs (GS, Fortune 500), which has so far been able to avoid taking as large a hit from the credit crisis as its fellow banks.

Stocks struggled Monday morning as oil prices surged to a record trading high just short of $140 a barrel and investors mulled Lehman Brothers' huge quarterly loss and AIG's CEO shakeup.

But stocks recovered in the afternoon as oil erased most of its gains and strength in tech and financials continued to dominate.

"Oil is the real catalyst here, with higher energy prices making it difficult for the market to move higher and lower prices helping stocks to rise," said Dean Barber, president at Barber Financial Group.

U.S. light crude oil for July delivery fell 25 cents to settle at $134.61 a barrel on the New York Mercantile Exchange after hitting an all-time trading high of $139.89 earlier. Oil prices jumped on the weaker dollar and reports of a North Sea rig fire.

Reports that Saudi Arabia plans to boost oil production by 200,000 barrels per day had little impact on the price Monday. Analysts think that an extra 200,000 barrels per day would mostly be eaten up by international demand, leaving oil prices high.

Financial shares rallied despite negative news out of both Lehman Brothers and AIG.

"I think it's old news in terms of the problems in the financial sector," Barber said. "Besides, those stocks have literally just been battered and there isn't that much more room for them to fall."

Homebuilders confidence matches record low

The housing industry assessment index fell in June to match a record low set last December.

A report released Monday by the National Association of Home Builders (NAHB)/Wells Fargo said the housing market index fell 1 point to a seasonally adjusted reading of 18, down from May's reading of 19. A reading below 50 indicates that more builders think home sales conditions are poor than those who think the environment is positive for sales. (Full story).

Key manufacturing index slips

The N.Y. Empire State index, a regional manufacturing reading, fell to -8.7 from a prior reading of -3.2. Economists surveyed by Briefing.com thought it would improve to -2. Any reading that is positive implies expansion in the sector, while a negative reading implies further weakness.

Financial sector in focus

Lehman Brothers (LEH, Fortune 500) reported a roughly $2.8 billion quarterly loss, in line with a warning last week, after posting huge trading and hedging losses. The company recently announced a management shakeup and said it was raising $6 billion in capital to shore up its balance sheet. However, Lehman shares rallied as investors had expected the worst following the previous week's warning. (Full story).

AIG (AIG, Fortune 500) became the latest financial firm to announce a management shakeup as a result of steep losses stemming from the mortgage crisis. CEO Martin Sullivan is out and the company's chairman, Robert Willumstad, is in as chief executive. Willumstad will also hang on to the chairman job. (Full story)

Lehman Brothers rose 5.4%, leading the financial sector. Merrill Lynch (MER, Fortune 500) was up 2.5% and Morgan Stanley (MS, Fortune 500) gained 3%.

Other stock movers

AT&T (T, Fortune 500) and Verizon Communications (VZ, Fortune 500) were both downgraded to "neutral" from "buy" by brokerage UBS, according to published reports. Both stocks slipped.

JP Morgan cut its rating on GE (GE, Fortune 500) to "neutral" from "overweight," citing a rough environment for the company's business operations. GE (GE, Fortune 500) shares lost 0.6%.

In merger news, the proposed Sirius-XM Satellite deal has moved closer to completion. Nearly 16 months after the deal was first announced, the chairman of the Federal Communications Commission said the two satellite radio firms should be allowed to merge. Sirius shares gained 3% and XM shares rose 4%. (Full story).

Market breadth was positive. On the New York Stock Exchange, winners topped losers 3 to 2 on volume of 1.16 billion shares. On the Nasdaq, advancers beat decliners over 4 to 3 as 1.87 billion shares changed hands.

Other markets

In currency trading, the dollar fell versus the euro and gained against the yen.

COMEX gold for August delivery rose $13.20 to settle at $886.30 an ounce.

Corn prices have skyrocketed 11% in the past week as flooding soaks fields in the Midwest just before the crucial growing season. (For more on the floods and the economy, click here).

The national average price for a gallon of regular unleaded gas rose to a record high of $4.077, up from the previous day's record of $4.060, AAA reported.

In the bond market, Treasury prices fell, raising the yield on the benchmark 10-year note to 4.27% from 4.25% late Friday. Bond prices and yields move in opposite directions.