Dow drops nearly 300 after oil prices jump as Trump urges Iran’s unconditional surrender

NEW YORK (AP) - U.S. stocks slumped under the weight of a jump for the price of oil. The S&P 500 fell 0.8% Tuesday following signals that Israel's conflict with Iran may be worsening and that one of the U.S. economy's main engines is weakening. That nearly erased the S&P 500's gain for the week.

The Dow Jones Industrial Average dropped 0.7%, and the Nasdaq composite sank 0.9%. Treasury yields also fell following a weaker-than-expected report on sales at U.S. retailers. Crude oil prices rose more than 4% on worries about damage to the flow of oil because of fighting between Israel and Iran.

THIS IS A BREAKING NEWS UPDATE. AP's earlier story follows below.

NEW YORK (AP) - U.S. stocks slumped on Tuesday under the weight of another jump for the price of oil. It was a return to form for financial markets after Wall Street's worries about Israel's fighting with Iran had seemed to calm a bit on Monday.

The S&P 500 fell 0.8% following signals that the Israel-Iran conflict may be worsening and that one of the U.S. economy's main engines is weakening. The swing sent Wall Street's main measure of health nearly back to where it started the week.

The Dow Jones Industrial Average was down 297 points, or 0.7%, as of 3:15 p.m. Eastern time, and the Nasdaq composite was 0.8% lower.

Stocks sank under increasing pressure from crude oil prices, which climbed in their latest see-saw move. A barrel of benchmark U.S. crude jumped 4.3% to $74.84. Brent crude, the international standard, added 4.4% to $76.45 per barrel.

Their gains accelerated after President Donald Trump raised the temperature on Israel's fight with Iran by calling for "UNCONDITIONAL SURRENDER!" and saying that "We are not going to" kill Iran's leader, "at least for now."

Before that, Trump had left a Group of Seven summit early and warned that people in Iran's capital should evacuate immediately. It took only about eight hours for Trump to go from suggesting a nuclear deal with Iran remained "achievable" to urging Tehran's 9.5 million residents to flee for their lives.

The fighting has the potential to drive up prices for crude oil and gasoline because Iran is a major producer of oil, and it sits on the narrow Strait of Hormuz, through which much of the world's crude passes. Past conflicts in the area have caused spikes in oil prices, though they've historically proven to be only temporary after showing that they did not disrupt the flow of oil.

Often, higher oil prices can help stocks of companies in the solar industry because they increase the incentive to switch to alternative energy sources. But solar stocks tumbled Tuesday because of the possibility that Congress may phase out tax credits for solar, wind and other energy sources that produce fewer emissions that change the Earth's climate.

Enphase Energy dropped 24.3%, and First Solar fell 18.5%.

Treasury yields also fell in the bond market after a report said shoppers spent less last month at U.S. retailers than the month before and than economists expected. Solid such spending has been one of the linchpins keeping the economy out of a recession, but part of May's drop may have simply been a return to more normal trends.

In April, some shoppers had rushed to buy automobiles to get ahead of Trump's tariffs.

"Today's data suggests consumers are downshifting, but they haven't yet slammed the brakes," according to Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management

On the winning side of Wall Street was Jabil, which jumped 8.2% after reporting a stronger profit for the latest quarter than analysts expected. CEO Mike Dastoor credited strength from accelerated demand related to artificial-intelligence technology, among other things.

Verve Therapeutics soared 81.3% after Eli Lilly said it would buy the company developing genetic medicines for cardiovascular disease in a $1 billion deal that could be worth up to $1.3 billion if certain conditions are met. Lilly's stock slipped 1.7%.

All the action took place as the Federal Reserve began a two-day meeting on interest rates. The nearly unanimous expectation among traders and economists is that the Fed will make no move.

The Fed has been hesitant to lower interest rates, and it's been on hold this year after cutting at the end of last year, because it's waiting to see how much Trump's tariffs will hurt the economy and raise inflation. Inflation has remained relatively tame recently, and it's near the Fed's target of 2%.

More important for financial markets on Wednesday will likely be the latest set of forecasts that Fed officials will publish for where they see the economy and interest rates heading in upcoming years.

In the bond market, the yield on the 10-year Treasury eased to 4.38% from 4.46% late Monday. The two-year yield, which more closely tracks expectations for what the Fed will do with its overnight interest rate, fell to 3.94% from 3.97%.

In stock markets abroad, indexes fell across much of Europe after finishing mixed in Asia.

Tokyo's Nikkei 225 index rose 0.6% after the Bank of Japan opted to keep its key interest rate unchanged. It's been gradually raising its rate from near zero and cutting back on its purchases of Japanese government bonds to help counter inflation.