Crude surged past the $45 per barrel mark, trading at $45.50, up 70 cents, on the New York Mercantile Exchange. That raised concerns that the Federal Reserve, which hiked interest rates to 1.5 percent on Tuesday, would have to be aggressive in further rate increases to combat inflation — at the same time that earnings growth and the economy is slowing down.

"Obviously, oil prices are spooking the market," said Peter Cardillo, chief strategist and senior vice president at S.W. Bach & Co. "I think, based on today's fundamentals, the market is very cheap and oversold. Unfortunately, oil is hanging over everything."

On top of the oil issue, Hewlett-Packard was the latest in a string of technology companies to disappoint Wall Street with second-quarter earnings. Like Cisco Systems Inc. and National Semiconductor Corp. earlier this week, HP said its third quarter would be similarly grim.

According to preliminary calculations, the Dow Jones industrial average fell 123.73, or 1.2 percent, to 9,814.59. It was the third triple-digit drop in the Dow in the past six sessions, and broke through the 2004 low set on Monday. It was the lowest close on the Dow since Nov. 28.

Broader stock indicators were also substantially lower. Hit hard by HP's earnings and the other warnings, the Nasdaq composite index was down 29.93, or 1.7 percent, at 1,752.49. It was the Nasdaq's lowest close since Aug. 18, 2003.

The Standard & Poor's 500 index dropped 12.61, or 1.2 percent, to 1,063.18, its lowest finish since Dec. 10.

Mixed economic news did little to help matters. The Labor Department said first-time jobless claims moved to a five-week low, perhaps signaling some moderation in a very disappointing job market. However, the Commerce Department reported that business inventories rose by 0.9 percent in June, the biggest jump in four years — a sign that businesses are having trouble moving products off the shelves.

The department also reported an 0.7 percent increase in retail sales for July, up from a 0.5 percent decrease in June but less than the 1 percent gain economists expected. Retail sales are considered a strong indicator of the state of the economy, which is fueled in large part by consumer spending.

And consumer prices are in danger of rising should oil prices continue their rise, because companies have to pay fuel prices to ship their products to stores.

The Russell 2000 index of smaller companies was down 9.53, or 1.8 percent, at 517.10, also a new low for the year to date.