Sept. 13 (Bloomberg) -- U.S. stocks declined as consumers and investors became increasingly pessimistic about the economy in the wake of Hurricane Katrina and record oil prices.

Higher fuel costs ``will directly affect consumers' pocketbooks and impact consumer psychology,'' said Lawrence Creatura, who helps manage $2.6 billion at Clover Capital Management in Rochester, New York. ``You're going to see a number'' of retailers cut earnings projections, he said.

Best Buy Co., the biggest U.S. electronics merchant, and Knight Ridder Inc., the country's fourth-largest newspaper publisher, led the drop after both gave disappointing forecasts.

The Standard & Poor's 500 Index lost 9.36, or 0.8 percent, to 1231.20. Companies that cater to consumers and depend on economic growth, including retailers, contributed the most to the slide.

The Dow Jones Industrial Average fell 85.50, or 0.8 percent, to 10,597.44. The Nasdaq Composite Index retreated 11.08, or 0.5 percent, to 2171.75.

After benchmark indexes closed at their highest in about a month on Sept. 9, the market's rally has stalled on concern mounting costs associated with the hurricane may slow the economy. The storm, which struck the Gulf Coast on Aug. 29, may result in total damages in excess of $125 billion, the most in U.S. history, according to storm modeler Risk Management Solutions Inc.

Consumer Confidence

Consumers' optimism about the economy fell, according to an index compiled by Investors' Business Daily and TechnoMetrica Market Intelligence. The index dropped to 41.2 in September, the lowest in its four-year history, from 50.9 in August.

Investors also became more bearish this month about prospects for economic and profit growth worldwide after the hurricane, and expect to avoid U.S. stocks over the next year, according to a Merrill Lynch & Co. survey.

``We see the probability of a recession tipping over the 50-50 point right now,'' said Barry James, chief equity strategist at James Investment Research Inc., which manages $950 million in Dayton, Ohio. The environment for stocks is ``very, very risky today.''

Gasoline for October delivery increased 1 percent to $1.892 a gallon in New York on speculation U.S. fuel supplies will fall because of damage caused to refineries in the wake of the hurricane. Crude oil prices lost 0.4 percent to $63.11 a barrel.

About 11 stocks retreated for every three that rose on the New York Stock Exchange. Some 1.5 billion shares changed hands on the Big Board, 5 percent more than the three-month average.

Best Buy

Best Buy lost $5.57, or 11 percent, to $44.79 for its worst drop in almost three years. The company forecast fiscal third- quarter earnings of 28 cents to 32 cents a share, trailing the 34-cent average analyst estimate in a Thomson Financial survey.

Store remodeling, expansion of its technical support service and the expensing of stock options are adding to costs, the company said. Best Buy also cut a percentage point from its forecast for same-store sales gains this year because high gasoline prices are weighing on consumer spending.

Circuit City Stores Inc., the second-largest U.S. electronics chain, slid 46 cents to $16.46. RadioShack Corp., the third biggest, slipped 53 cents to $25.68. A gauge of consumer stocks fell 1.4 percent for the biggest loss among 10 industry groups.

Knight Ridder declined $3.44, or 5.3 percent, to $61.46, sparking a retreat in other newspaper publishers. The company said third-quarter profit will drop 20 percent after Katrina disrupted its business in Mississippi, automakers trimmed advertising and newsprint costs soared.

Publishing Stocks

New York Times Co., parent of the third-largest U.S. newspaper by circulation, fell $1.40 to $33.19. Washington Post Co., which publishes the Post newspaper and Newsweek magazine, declined $32.45 to $815.70. Dow Jones & Co., owner of the Wall Street Journal, was down 91 cents at $41.04.

Pfizer Inc., the world's biggest drugmaker, lost 36 cents to $25.98. The U.S. Food and Drug Administration rejected its Oporia drug for the prevention of osteoporosis. Pfizer said it will meet with the FDA to discuss the application.

Stocks failed to get a boost from a report on producer prices that indicated inflation climbed less than economists expected. Prices paid to factories, farmers and other producers increased 0.6 percent in August, the Labor Department said. The core measure, which excludes fuel and food, was unchanged. Economists were expecting 0.7 percent and 0.1 percent, respectively, according to a Bloomberg News survey.

Consumer prices rose an estimated 0.5 percent in August, the same as in July, based on the median economist forecast. The report is scheduled for the day after tomorrow.

Trade Deficit

The U.S. trade deficit unexpectedly narrowed to $57.9 billion in July as exports rose to a record and higher energy prices sapped demand for imports. The gap in goods and services trade fell 2.6 percent from a revised $59.5 billion in June. Economists surveyed by Bloomberg predicted the deficit would widen to $59.8 billion.

Freeport-McMoRan Copper & Gold Inc., owner of the world's biggest gold mine, slumped $1.44 to $42.35. The company said third-quarter copper and gold sales will be lower than projected.

The American depositary receipts of Nokia Oyj, the largest mobile-phone maker, rallied 74 cents to $16.81. The company boosted its third-quarter sales and profit forecasts as handsets with high-resolution cameras and music players lured buyers.

Motorola Inc., the second-biggest mobile-phone maker, increased 61 cents to $23.45. Qualcomm Inc., the No. 2 maker of chips for wireless phones, gained 30 cents to $42.85.

Airlines

Northwest Airlines Corp. and Delta Air Lines Inc. declined after the New York Times said the carriers may seek bankruptcy protection as soon as tomorrow. The companies are wrapping up details of their bankruptcy filings, including the financing needed to keep up operations during bankruptcy, the Times reported, citing people close to the airlines.

Spokesmen for both airlines told the Times that no decisions on Chapter 11 filings have been made. Northwest spokesman Kurt Ebenhoch said the company has made no decision regarding a Chapter 11 filing. Delta spokesman Anthony Black didn't immediately return a call seeking comment.

Shares of Northwest slumped $1.74, or 53 percent, to $1.57. The stock has plunged 86 percent this year. Delta lost 7 cents to 78 cents, bringing its year-to-date loss to 90 percent.

S&P 500 shares, called Spiders, fell 69 cents to $123.66. Nasdaq-100 tracking shares, known by their QQQQ symbol, slipped 10 cents to $39.63.

S&P 500 futures expiring in December dropped 7.70 to 1238.90 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures declined 3.50 to 1623.

The Russell 2000 Index, which tracks companies with a median market value of $594 million, slid 1.1 percent to 673.13. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, lost 94.98, or 0.8 percent, to 12,308.65. Based on changes in the Wilshire, the value of stocks decreased by $118.7 billion.

Best Buy Inc. (BBY US)
Circuit City Stores Inc. (CC US)
Delta Air Lines Inc. (DAL US)
Dow Jones & Co. (DJ US)
Freeport-McMoran Copper & Gold Inc. (FCX US)
Knight Ridder Inc. (KRI US)
Motorola Inc. (MOT US)
New York Times Co. (NYT US)
Northwest Airlines Corp. (NWAC US)
Nokia Oyj (NOK US)
Pfizer Inc. (PFE US)
RadioShack Corp. (RSH US)
Washington Post Co. (WPO US)

To contact the reporter on this story: Ari Levy in New York at alevy5@bloomberg.net.

Last Updated: September 13, 2005 16:29 EDT