Feb. 22 (Bloomberg) -- U.S. stocks fell, as oil prices climbed above $51 a barrel, sending the Dow Jones Industrial Average and the Standard & Poor's 500 Index to their steepest losses since August.

``People are still wedded to this notion that what's good for energy is bad for everything else,'' said Jerry Castellini, who helps manage $1.4 billion for CastleArk Management in Chicago. ``It's going to be tough'' this year.

Retailers declined after Home Depot Inc.'s quarterly profit failed to exceed analysts' forecasts and Federated Department Stores Inc. said earnings this quarter may disappoint.

The Dow average fell 174.02, or 1.6 percent, to 10,611.20, the largest retreat since Aug. 5. The S&P 500 dropped 17.43, or 1.5 percent, to 1184.16, its worst performance since Aug. 6. The Nasdaq Composite Index slid 28.30, or 1.4 percent, to 2030.32.

Five stocks were down for every one that was up on the New York Stock Exchange. Some 1.7 billion shares changed hands on the Big Board, making it the busiest trading day this year.

Crude oil for March delivery jumped 5.8 percent to $51.15 a barrel in New York, the highest closing price since Oct. 29 and biggest one-day gain since June 1. Colder-than-normal weather in the U.S. and Europe raised demand for furnace fuels.

Home Depot

Home Depot lost $1.74, or 4.1 percent, to $40.28 for the second-worst performance in the Dow industrials. The world's largest home-improvement retailer said earnings rose 9.5 percent, the smallest gain in almost two years. Home Depot's quarterly profit of 47 cents a share matched the average estimate in a Thomson Financial survey of analysts.

Smaller rival Lowe's Cos. retreated $1.22 to $57.53. A gauge of retailers declined 2.4 percent.

Federated, which is reported to be in talks to buy May Department Stores Co., slid $1.43 to $55.29. The company, which owns Macy's and Bloomingdale's, said earnings this quarter will be as much as 50 cents a share, less than the 53-cent average analyst estimate in a Thomson poll.

Wal-Mart Stores Inc. dropped 72 cents to $52. The world's largest retailer said on Feb. 17 that lower-income shoppers may be helped as oil prices ease, which would increase the company's sales.

Oil prices closed above $50 a barrel for the first time ever on Oct. 1 and closed at a record $55.17 on Oct. 26, representing a gain of 10 percent. During that period, the Dow industrials slumped 3 percent and set a 2004 low, while Wal-Mart fell 0.6 percent.

Dollar's Decline

Some investors said the dollar's decline today renewed concern about faster interest-rate increases from the Federal Reserve. The dollar fell the most in more than six months against the euro and dropped versus the yen, Korean won and at least 30 other currencies after the Bank of Korea said it plans to increase its non-dollar reserves.

``You're seeing an ally is losing faith in the strength of the dollar,'' said Larry Peruzzi, senior equity trader at Boston Co. ``It may put a little bit of a burden on the Fed to get involved and do something. I think it might mean higher rates.''

Against the euro, the dollar weakened 1.5 percent to $1.3257 in New York from $1.3068 yesterday, according to EBS, an electronic foreign-exchange system. It was the biggest drop since Aug. 6. The U.S. currency also slid 1.4 percent, the most since Oct. 8, to 104.05 yen from 105.54.

An index of financial shares dropped 1.5 percent and was the biggest drag on the S&P 500 among 10 industry groups.

Consumer Prices

Inflation figures to be released tomorrow may also put pressure on the Fed to raise rates. The Labor Department may say an annualized measure of consumer prices, excluding food and energy, increased 2.3 percent in January, the most since August 2002, according to the median estimate of economists surveyed by Bloomberg News. The Federal Reserve has raised its target interest rate six times since June to curb inflation.

Gold stocks rose as the weak dollar boosted the metal's appeal as an alternative to U.S. assets. The American Stock Exchange Gold BUGS index rallied 3.7 percent. Newmont Mining Corp., the world's biggest gold producer, added $2.03 to $44.50.

Today's slide erased the Dow average's gain for the year. Both the Dow and the S&P 500 retreated for the first week in four last week after Fed Chairman Alan Greenspan suggested to Congress that the pace of interest-rate increases isn't about to slow. The Dow has lost 1.6 percent in 2005, while the S&P has slid 2.3 percent.

The Nasdaq had its fourth consecutive daily decline, bringing its drop this year to 6.7 percent.

`Another Problem'

``I have not bought a new stock in nearly eight months,'' said Bob Rodriguez, whose $1.8 billion FPA Capital Fund has returned 17 percent annually the past five years. ``Corporate profit margins are at all-time record levels and the odds are that they will be declining from here. That creates another problem for the equity market.''

Medtronic Inc. retreated 98 cents to $52.02. Sales growth at the world's biggest maker of implantable defibrillators may lag behind expectations as the company's markets slow or become more competitive, Credit Suisse First Boston analyst Adam Galeon wrote in a note to clients. Galeon cut his rating on the stock to ``neutral'' from ``outperform.''

Merck

Merck & Co. fell $1.40 to $31.21. The second-largest U.S. drugmaker surged 13 percent on Feb. 18 after an advisory panel to the U.S. Food and Drug Administration ruled that Merck's Vioxx painkiller may be sold again with the government's strongest safety warning. Merck withdrew Vioxx from the market on Sept. 30 after studies linked it to heart attacks.

Winn-Dixie Stores Inc. shares were suspended from trading as the NYSE moved to delist the company. The operator of about 920 supermarkets in the southern U.S. filed for Chapter 11 bankruptcy protection after being squeezed by competition from Wal-Mart and reduced credit from its vendors.

Benchmark indexes fell even as a private survey showed higher-than-expected consumer confidence. The Conference Board's sentiment index decreased to 104 this month from a revised 105.1 in January. Economists forecast a reading of 103, the median estimate in a Bloomberg survey.

Kerr-McGee

Kerr-McGee Corp. surged $3.70 to $74.20. The oil and natural- gas producer said investor Carl Icahn and an Icahn-related partnership plan to buy up to $1 billion of the company's stock.

Level 3 Communications Inc. climbed 35 cents, or 18 percent, to $2.28. The operator of a fiber-optic communications network said it will raise $880 million by selling convertible notes.

To contact the reporter on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net.

Last Updated: February 22, 2005 16:33 EST