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NEW YORK: US stocks fell on Tuesday, as a steep decline in the price of oil and other commodities hammered energy and materials companies while tech shares fell amid jitters a global economic slowdown would crimp technology spending.

The market reversed sharp gains notched at the beginning of the day, as commodity-related shares sold off. Analysts said the drop in those shares was likely further fueled by the closure of a hedge fund announced after the bell.

The market had initially soared more than 1% as oil prices fell to a five-month low on relief that damage to energy infrastructure from Hurricane Gustav appeared to be limited. The lower oil prices also had buoyed hopes of a recovery in consumer and business spending.

But as fears faded that Gustav would cause a prolonged disruption to energy supplies, the focus shifted to one of the reasons for oil's decline since its record peak in July: fears of slowing world energy demand.

After the closing bell another potential reason for the market's reversal emerged, when Ospraie Management told investors it would close down a fund that lost 27 percent in August amid a sell-off in energy, mining and resource equity holdings.

Lehman Brothers Holdings Inc took a 20% stake in Ospraie in 2005. Lehman's shares were down more than 4% in after-hours trading.

The Dow Jones industrial average .DJI dropped 26.63 points, to 11,516.92. The Standard & Poor's 500 Index .SPX dropped 5.26 points, to 1,277.57. The Nasdaq Composite Index .IXIC dropped 18.28 points, to 2,349.24.

In addition, worries that tech companies will suffer as the global economy slows, which sent markets tumbling on Friday after computer maker Dell Inc warned that companies worldwide are cutting back on technology spending, continued on Tuesday.

US crude CLc1 settled down $5.75 to $109.71 a barrel, below the 200-day moving average of around $111.

In a sign of more fallout from the credit crisis, Fitch Ratings cut its ratings on the preferred stock of housing finance companies Fannie Mae and Freddie Mac on concern a lack of access to fresh capital could lead the companies to suspend dividend payments.

The lower price of oil did help airline and retail stocks. The airline index .XAL rose 6.6% and the S&P retail index .RLX gained 3%.

Trading was tepid on the New York Stock Exchange, with about 1.1 billion shares changing hands, well below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq about 2 billion shares traded, also below last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones on the NYSE by 17 to 14 while decliners just edged out advancers on the Nasdaq by 14.2 to 13.8.

Source : UTVi Stock Market News: Commodity, tech shares lead market lower