Dow falls after 3M cuts forecast, oil rises

NEW YORK — Corporate profit warnings and record oil prices overshadowed a benign jobs creation report and sent stocks sharply lower Friday as investors worried that the economy was cooling too quickly. The Dow Jones industrials shed 134 points as stocks ended the week with a loss.

The Labor Department reported just 121,000 new jobs in May, short of the 175,000 economists expected. With the unemployment rate steady at 4.6 percent, the report was exactly what Wall Street had hoped for — low unemployment, but modest job growth that won’t spark a sharp increase in consumer demand, which could foreshadow inflation and interest rate hikes.

However, with 3M Co. warning of lower-than-expected earnings, investors grew concerned that slower economic growth, while good for keeping rates steady, could cut into corporate profits. Yet few other companies have warned the markets about falling profits, analysts noted.

“I think what you’re seeing with 3M is a bit of a head-fake,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “Overall, I think you’ll see second-quarter profits come in strong across the board. Today could just be a tempest in a teapot.”

Record oil prices also pressured stocks, with traders worrying that consumers hit with higher energy prices would spend less elsewhere. A barrel of light crude set an intraday record of $75.78 before settling at $74.09, down $1.05, on the New York Mercantile Exchange.

The Dow fell 134.63, or 1.2 percent, to 11,090.67, with part of its fall due to a drop in component 3M.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index lost 8.60, or 0.67 percent, to 1,265.48, and the Nasdaq composite index dropped 25.03, or 1.16 percent, to 2,130.06.

Bonds rallied for a second straight session, with the yield on the 10-year Treasury note falling to 5.13 percent from 5.18 percent late Thursday. The dollar fell against most major currencies, while gold prices rose.

The early losses illustrated the acute balance investors, perhaps unrealistically, are seeking. On the one hand, a strong economy could spark inflation, but a weak economy would eat into corporate profits and send stocks lower. While the Federal Reserve seeks to maintain that balance, the selloff reflects investors’ chronic worries that the balance will shift, or has already.

The industrial conglomerate 3M, seen as something of a barometer for its sector, was particularly troubling Friday. 3M cut its second-quarter and 2006 profit forecasts due to lower-than-expected sales, and its stock tumbled $7.29, or 9 percent, to $74.10.

Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where preliminary consolidated volume came to 2.12 billion shares, compared with 2.14 billion traded Thursday.

The Russell 2000 index of smaller companies was down 11.34, or 1.57 percent.