NEW YORK (AP) -- Stocks fell sharply Monday, giving up earlier gains, as higher oil prices weighed on the market.
Oil hit a two-year high early in the day, nearing $107 a barrel, as Libyan government forces launched airstrikes against opposition fighters at an oil port.
The market has been shaken in recent weeks by the uprising in Libya and its effect on oil prices. A prolonged cut in crude exports from the OPEC nation could hurt the economic recovery by raising transportation and manufacturing costs. Benchmark West Texas Intermediate crude rose $1.15 to $106 per barrel in afternoon trading.
Stocks had started higher on news of two corporate deals. Hard drive maker Western Digital Corp. jumped 16 percent after announcing plans to buy Hitachi Global Storage Technologies for $4.3 billion. French fashion conglomerate LVMH Moet Hennessy Louis Vuitton says it will buy Italian jeweler Bulgari SpA for $6 billion.
Investors fear that oil prices could surge even higher if the unrest in the Middle East and North Africa spreads to major oil-producing countries like Saudi Arabia.
"The market is going to have to sort out what's fact and what's rumor," said Quincy Krosby, chief market strategist for Prudential Financial. "They are saying, 'how high can the prices go, and more importantly for how long.'"
The Dow Jones industrial average fell 109 points, or 0.9 percent, to 12,060.
The Standard & Poor's 500 index fell 15 points, or 1.16 percent, to 1,305. The Nasdaq composite fell 54 points, or 2.3 percent, to 2,730.
Investments perceived as being relatively safe rose as investors pulled money out of stocks.
The dollar, Treasury bonds and gold futures all rose, as did utility companies. The utility company index within the S&P 500 rose 0.6 percent even though the overall index declined. The CBOE Market Volatility Index jumped 13 percent to 21.55, a sign that investors expect stock trading to become more turbulent.
The yield on the 10-year Treasury note edged down to 3.49 percent from 3.50 percent late Friday. Bond yields fall when their prices rise.
Starbucks rose 1 percent after CEO Howard Schultz told the Wall Street Journal the company is looking for companies to acquire. AT&T Inc. rose 0.5 percent, the biggest gain in the Dow 30. Walt Disney Co. fell the most, 2.5 percent.
This afternoon, the Federal Reserve reports on how much consumers borrowed in January. Analysts expect the report to show that borrowing rose at an annual rate of $3.5 billion after rising at a $6.1 billion rate in December.
Borrowing is just 0.7 percent higher than the three-year low hit in September. Investors may take it as a positive sign if borrowing exceeds expectations. The report is due out at 3 p.m. EST.