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Stocks slipped lower on Monday morning as Israeli jets pounded targets in Gaza, sending oil prices higher and injecting new tremors into the global markets.
The events in Gaza underscored the market's sensitivity to conflict in a region that produces a third of world crude supply. After rising sharply early Monday, crude oil futures for February delivery fell back to $38.08 a barrel, only 37 cents higher in mid-day trading.
"What's happening in the Middle East is driving oil prices," said Martin Van Vliet, an economist at ING in Amsterdam. "Maybe that is also focusing some minds on the recent drastic cuts in supply."
Shortly after 1 p.m., the Dow Jones industrial average was down about 130 points while the wider Standard & Poor's 500-stock index had fallen 1.5 percent, and the Nasdaq composite 2.2 percent.
After months of stark drops and record volatility, stock markets have quieted markedly this month. Trading volumes are lower because of the holidays, and the Dow has not risen or fallen by triple-digit increments in five trading sessions.
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Analysts have said that much of the panicked selling that gripped Wall Street through October and November has ebbed, and that investors are essentially in a holding pattern as they wait for President-elect Barack Obama to take office and a new round of grim quarterly earnings.
"It would take a whole new fountain of bad news to bring this market to new lows, not just the same water flowing through," said David Bianco, chief United States equity strategist at UBS. "We're just in this kind of wait-and-see environment."
General Motors stock rose slightly as investors waited to hear whether bondholders of GMAC, the financing arm of G.M., had approved crucial steps in a plan to convert the company into a bank holding company, giving it access to billions in federal bailout funds. The company's bondholders had until Dec. 26 to approve a bond exchange program, but more than two days have passed without word from GMAC.
Shares of Dow Chemical plunged nearly 18 percent after the government of Kuwait scuttled a deal that would have allowed Dow to finance a $15 billion purchase of the specialty chemicals company Rohm & Haas.
Despite the setback, Rohm & Haas issued a statement saying it would "work diligently" to complete the deal with Dow. Shares of the Philadelphia-based Rohm & Haas were down 20 percent.
Oil's bounce on Monday followed six months of price declines as global consumption plummets amid widespread economic downturn.
This month, the Organization of the Petroleum Exporting Countries announced a 2.2 million-barrel-a day cut in production quotas, effective at the start of January, to stabilize prices amid falling demand and rising oil stockpiles.
The December oil market reports from the Department of Energy, the International Energy Agency and the OPEC Secretariat significantly cut their forecasts for oil demand growth forecasts for 2009. In a research report released after the OPEC announcement this month, Deutsche Bank said it expected additional cuts would be required throughout next year as demand stays soft.
European stocks rose Monday, following a similar pattern in Asia, lifted by energy shares and a positive end to last week's trading in the United States.
The FTSE 100 index in London gained 2.3 percent and the DAX in Frankfurt climbed 1.8 percent. Shares on Wall Street are expected to open softly.
Energy and resource stocks led the gains in Europe. BP, the British oil company, added 4.2 percent, and Repsol of Spain was up 1.9 percent. BHP Billiton, the world's biggest mining company, advanced 5.1 percent in London.
Asian stocks gained as speculation about merger activity lifted insurers, while commodity producers advanced. The Nikkei 225 stock average added 0.1 percent in Tokyo, while the Sensitive Index gained 1.4 percent in Mumbai.
The dollar lost ground in Europe. The American currency was also weaker versus the yen in anticipation of housing and manufacturing reports this week that are expected to show the economy slipping further into recession. The euro rose to $1.4320 in London, from $1.4028 in New York on Friday. The dollar fell to ¥90.41 from ¥90.81.
