NEW YORK (CNNfn) - The Dow Jones industrial average tumbled nearly 400 points Thursday, its sixth loss in as many sessions and its fifth-biggest point drop on record, after a surge in oil prices sparked fears that rising inflation could harm the economy.
Violence escalated in the Mideast, sending oil prices as high as $36 a barrel, in the latest blow to a market that has sold off steadily since Labor Day.
The Nasdaq composite index tumbled to its worst close of the year; the Dow hit a seven-month low.
The selling picked up by session's end, a development that bodes poorly for any rebound Friday.
 "That probably means we're going to follow through to the downside tomorrow," Bob Dickey, chief technical analyst at Dain Rauscher, told CNN's Street Sweep.
Thursday's surge in oil prices to nearly 10-year highs, if it holds, could stall consumer spending and eat into corporate profitability. The gains come amid a market worried about slower earnings growth.
Home Depot, a Dow component, helped fan those worries after saying lower sales will reduce earnings. And on the Nasdaq, Yahoo! plunged for a second day on concern about the Internet portal's growth rate.
"We've been building to this for some time," Vince Farrell, chairman of Spears Benzak Salomon & Farrell, told CNN's Street Sweep. "The economy is in a slowdown but it's not in a terrible situation."
In a session that began with gains, investors at first moved into stocks battered by a five-week sell-off. But the advance quickly faded.
 The Dow Jones industrial average fell 379.21 points, or 3.6 percent, to 10,034.58. The Dow's fifth-worst point decline on record takes the index back to levels not seen since March.
Worse, the index of 30 blue chip stocks is essentially unchanged since the spring of 1999, when the Dow first crossed 10,000.
The Nasdaq composite index, which has seen dramatic losses this month on earnings worries, held up better Thursday. Still, the index fell 93.81, or 3 percent, to 3,070.68, below its previous lowest close of the year: 3,164.55, set May 23.
"We have people worried about earnings," said John Forelli, senior vice president at Independence Investment Associates.
Forelli forecasts the market shakeup could last for months as Wall Street attempts to revalue stocks amid a cooling economy.
"Valuations for most of the market are still pretty high," he said.
The S&P 500 shed 34.81, or 2.5 percent, to 1,329.78.
Still, the market showed isolated areas of strength. Chip stocks rose after two semiconductor makers posted strong earnings. Oil shares gained with the price of the commodity. And drug stocks, among the year's best-performing sectors, continued drawing buyers.
More stocks fell than rose. Declining issues on the New York Stock Exchange topped advancing ones 2,145 to 767, on trading volume of 1.3 billion shares. Nasdaq losers beat winners 2,966 to 1,118, as more than 2 billion shares changed hands.
In other markets, Treasury securities edged higher. The dollar rose against the euro but was little changed versus the yen.
Oil gushes higher
Crude oil prices jumped again Thursday, this time following outbursts of violence in the Middle East.
 In New York, oil for December delivery rose $2.48 to $35.72 a barrel and was as high as $36.90. Five U.S. sailors were killed in a possible terrorist attack on a Navy ship in a Yemen port. And escalation in the recent violence between Israelis and Palestinians also affected oil prices.
"This is just one additional negative that the world's economies don't need right now," Sheila Hartnett-Devlin, a fund manager at Fiduciary Trust Co. International, told CNNfn's Talking Stocks.
The surge in the commodity hit a market already obsessed with how much the slowing economy will bite into profitability. Economists explaining the economy's 10-year expansion often cite the importance of cheap oil, which kept costs down and reduced inflation. Rising crude prices could threaten this growth rate.
Brian Clifford, portfolio manager at SunAmerica Asset Management, told CNNfn's In the Money that high oil prices will keep a lid on the markets. (406K WAV) (406K AIFF).
The Federal Reserve has raised interest rates six times since the summer of 1999 and the euro this year has plunged. Amid this climate, companies have readied Wall Street for disappointments.
Home Depot (HD: Research, Estimates) said Thursday it will miss fiscal third- and fourth-quarter earnings forecasts due to a drop in lumber and building materials retail prices. The home improvement retailer's stock shed $13.88, or 28 percent, to $35.06.
Wal-Mart (WMT: Research, Estimates), another Dow retailer, fell $1.19 to $44.13. And Dow component J.P. Morgan (JPM: Research, Estimates) lost $10.38 to $136.44.
Yahoo! (YHOO: Research, Estimates), meanwhile, slid $8.75 to $56.63. The second day of big losses came after details of Yahoo!'s quarterly earnings report late Tuesday revealed areas of slower growth.
The rally must wait
The day wasn't supposed to go this way. Stocks opened higher on some stronger-than-expected tech earnings. A fiber-optics equipment maker, meanwhile, issued a forecast for better-than-expected financial results.
Applied Micro Circuits (AMCC: Research, Estimates), a maker of computer memory chips, rose $3.72 to $164 after saying it earned $35.7 million, or 26 cents a diluted share, ahead of the 23 cents per share expected by analysts.
Intel (INTC: Research, Estimates), one of Nasdaq's biggest companies, gained $1.66 to $37.03.
And fiber-optics maker Corning (GLW: Research, Estimates) advanced $1.13 to $84.25 after saying it expects to report third-quarter earnings of about 34 or 35 cents a share, well above Wall Street forecasts of 29 cents a share.
The selective tech gains come against a backdrop of losses. The Nasdaq composite fell over the last six sessions and is down more than 24 percent this year. The Dow is now off 13 percent this year, while the S&P 500 is 10 percent lower in 2000.
Investors have been unloading stocks on expectations that profit growth will slow with the economy. A series of high-profile financial warnings from companies such as Dell Computer, Intel and Apple Computer sparked massive selling.
 With these losses, analysts are attempting to divine when stocks will bounce back -- something that historically has always happened.
"I'd start to dust off the buy list on some of the tech names," Farrell said.
Investors found places to hide amid the sell-off. Exxon Mobil (XOM: Research, Estimates), which has gained 16 percent over the last six months, rose 38 cents to $94.13. And Dow drug maker components advanced; Johnson & Johnson (JNJ: Research, Estimates) rose $1.13 to $97.13, and Merck (MRK: Research, Estimates) added 69 cents to $77.19.
Two key reads on the economy come Friday when the government reports on September retail sales and producer prices. Analysts surveyed by Briefing.com see retail sales gaining 0.4 percent in the month, twice August's 0.2 percent gain. And the producer price index is forecast to have risen 0.4 percent in September, after falling 0.2 percent the previous month. 
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