US STOCKS-Wall Street close down as Middle East fears push US oil up 8%

By Sabrina Valle and Johann M Cherian

March 5 (Reuters) - U.S. stocks closed down on Thursday as the Middle East conflict entered its sixth day, pushing oil prices higher and spurring worries about inflation and whether the Federal Reserve will cut interest rates.

Expansion of the conflict to more countries fed fears of disruption in the Strait of Hormuz, a critical energy choke point, where missile and drone threats have drastically reduced tanker traffic.

This lifted U.S. crude prices CLc1 about 8.5% to $81 per barrel, the highest since July 2024. Global benchmark Brent LCOc1 crude rose 4.9% to $85.41. Traders worry a prolonged interruption could feed inflation and slow economic growth.

"Look at oil today, it tells you everything you need to know about why the stock market's down," said Michael Antonelli, market strategist at Baird Private Wealth Management. "The market is really trying to grapple with how long this conflict will last".

According to preliminary data, the S&P 500 .SPX lost 39.37 points, or 0.57%, to end at 6,830.13 points, while the Nasdaq Composite .IXIC lost 58.18 points, or 0.25%, to 22,749.31. The Dow Jones Industrial Average .DJI fell 790.63 points, or 1.62%, to 47,948.78.

The S&P 500 indexes that track performance of major U.S. companies in the industrials, materials and healthcare sectors have led declines. The passenger airlines sub-sector .SPCOMAIR tumbled.

Limiting losses was a strong forecast from chip designer Broadcom that projected its artificial intelligence chip revenue would exceed $100 billion next year. Its shares rose 3.2%.

With the U.S.-Israeli air war against Iran raging, Wall Street has outperformed its European and Asian counterparts this week, aided primarily by technology stocks that bore the brunt of February's selloff.

Any signs that crude prices could hit $100 a barrel would be worrisome, and investors were on the lookout for reports that the conflict could be nearing its end.

Stronger‑than‑expected ISM manufacturing and services results, along with firmer jobless‑claims data, pushed investors’ unofficial payroll expectations higher, suggesting the labor market may be tighter than assumed, said Steve Ricchiuto, chief economist at Mizuho Securities.

Investors expect price pressures to delay a 25-basis-point interest rate cut by the Federal Reserve to October from July, according to LSEG-compiled data.

Declines in financials such as JPMorgan Chase JPM.N and Goldman Sachs GS.N also weighed on the blue-chip Dow.

Data showed the number of Americans filing new applications for unemployment benefits was unchanged last week.