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Concerns about a slowing U.S. economy and rising inflation pushed oil prices down sharply for a second day on Wednesday, an unusual dip in the oil price rally that began more than six years ago.
The two-day decline totaled more than $10.50 a barrel, but analysts cautioned that it was still unclear how far prices would fall and that the respite may be temporary.
The drop in oil price contributed to a jump on Wall Street, with most major markets rising more than 2.5 percent. Investors were also buoyed by news that Wells Fargo reported a milder- than-anticipated profit drop and planned to increase its dividend, easing some concerns about the stability of banks.
Financial stocks in general were boosted by new limits proposed on naked short sales. Securities and Exchange Commission Chairman Christopher Cox said an emergency order targeting abusive short selling is aimed at avoiding bank runs amid a ''high risk'' of investor panics.
The order is a ''prophylactic'' step to keep stock manipulators from spreading lies and fueling a ''stampede,'' Cox said. Although no increase in such trades has been seen, ''we're simply trying to remove are tools of mischief.''
The temporary order, to take effect Monday, requires traders making short sales to borrow shares of government- sponsored mortgage buyers Freddie Mac and Fannie Mae, as well as 17 brokerages. The measure may make it more difficult to maliciously drive down stocks after Bear Stearns Cos. and IndyMac Bancorp collapsed amid investor concern they were faltering.
Regular short-sellers are necessary risk-takers and play a key role in making the stock market work. They borrow stock, gambling it will go down. If it does, they make money. If it doesn't, they lose money.
In naked shorts, shorters sell shares they haven't borrowed or don't intend to borrow. Some even short phantom shares that don't exist. Which is why it's technically illegal, though lightly enforced.
On the oil front, the drop in price also was triggered by fresh evidence that Americans were driving less because of gas prices, which have topped $4 a gallon and set records almost daily. Gas prices have jumped 35 percent in the past year and were a big reason inflation rose 1.1 percent nationally in June.
''The U.S. economy is becoming weaker and is unable to sustain oil consumption at these prices,'' said James Crandell, a commodity analyst at Lehman Brothers. The concern about rising costs was echoed by Fed Chairman Ben Bernanke, who provided a bleak assessment of the U.S. economy during two days of testimony to Congress, warning that inflation posed a significant risk to the nation's economic outlook.
''There's not enough lipstick to put on this pig,'' said Richard Moody, an economist Mission Residential. ''No matter how one slices and dices the CPI data, the bottom line is that U.S. workers are falling farther and farther behind.''
Oil futures fell $4.14, or 3 percent, to $134.60 a barrel on the New York Mercantile Exchange. That followed a $6.44 drop on Tuesday, the biggest one-day decline since 1991. Last week, oil reached a record, during trading hours, above $147 a barrel.
Some analysts said oil prices may have reached a peak last week, with big customers such as airlines and refiners balking at paying nearly $150 a barrel.
In the United States, gasoline demand fell by 5.2 percent last week, according to a survey by MasterCard, the 12th consecutive weekly drop. Since the beginning of the year, gasoline demand has fallen by about 1 percent.