By Michael J. Martinez
The Associated Press

NEW YORK - Rising crude oil prices and disappointing earnings from Hewlett-Packard Co. sent stocks plummeting Thursday, with the Dow dropping more than 120 points and all three major indexes reaching lows for the year.

Crude surged past $45 per barrel, 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 Tuesday, would have to be aggressive in further increases to combat inflation - at the same time that earnings growth and the economy perhaps are slowing down.

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.

HP plunged $2.57, or 13 percent, to $16.95.

Mixed economic news did little to help matters. The Labor Department said first-time jobless claims moved to a five-week low, but the Commerce Department reported business inventories rose by 0.9 percent in June - a sign businesses are having trouble moving products. The department also reported lower-than-expected retail sales for July.

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 Monday.

Broader stock indicators were also substantially lower. Hit hard by HP's earnings, 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 12.56, or 1.2 percent, to 1,063.23, its lowest finish since Dec. 10.

"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.''

Consumer prices may rise if oil prices continue to increase, since companies have to pay fuel prices to ship their products to stores.

"There's a huge demand for oil out there right now, on top of all the terrorism fears and the unrest in oil-producing countries," said Scott Wren, equity strategist for A.G. Edwards & Sons. "If prices rise, the Fed is going to have to react aggressively, even as earnings decelerate and the economy slows. It's a tough situation."