NEW YORK — Stocks plunged for a second straight session yesterday as Wall Street battled a storm of negative factors — record oil prices, interest rate jitters and a slowing economy. The Dow Jones industrial average dropped almost 167 points, bringing its two-day loss to 288.

Oil prices hovered above $78 a barrel, sustained in part by concerns the intensifying violence in the Middle East could disrupt supplies. Merrill Lynch warned that higher lending rates and gasoline prices would likely pressure consumer spending at Wal-Mart Stores Inc.

Markets are worried the world does not have enough reserves to offset a sudden cutoff from a major oil-producing country. There are also jitters about the hurricane threat to U.S. production nearly a year after Hurricane Katrina devastated New Orleans. All this at a time of growing global demand.

"Getting to $80 and beyond this summer seems quite inevitable," said Victor Shum, an energy analyst in Singapore.

The rise in oil prices came as fighting between Israel and Lebanon intensified, explosions hit Nigerian oil installations and a diplomatic standoff dragged on between the West and Iran over its nuclear program.

Many on Wall Street worried that the day's headlines signaled a worst-case scenario. Continued gains in energy prices could prompt the Federal Reserve to keep lifting interest rates to contain inflation, but the recent spate of downbeat earnings news suggested that economic growth was already moderating. Investors fear higher rates in a cooling economy could lead to a recession.

Broader stock indicators declined. The Standard & Poor's 500 index lost 16.31, or 1.3 percent, to 1,242.29; the Nasdaq composite index dropped 36.13, or 1.73 percent, to 2,054.11, its lowest level since last October.

Declining issues led advancers by more than 3 to 1 on the New York Stock Exchange.

Bonds edged higher, with the yield on the 10-year Treasury note dropping to 5.08 percent from 5.1 percent late yesterday. The U.S. dollar fell against the Japanese yen; gold prices climbed to about $660 an ounce.

Although consumers and businesses have so far appeared to weather the persistently high price of oil, an uneasy start to second-quarter earnings has investors nervous about a potential downturn. Analysts, however, have insisted that the economy remains sturdy and that the market's pessimism is overdone.

In economic news, the Labor Department said the number of first-time applications for jobless benefits rose 19,000 to 332,000 last week, a possible sign of an impending slowdown in the economy. Analysts had forecast a 7,000 increase.

Wall Street's decline yesterday pulled down overseas markets. Japan's Nikkei stock average slid 0.99 percent; Britain's FTSE 100 dropped 1.63 percent, Germany's DAX index slumped 1.96 percent, and France's CAC-40 was lower by 1.81 percent.

On the NYSE, volume of 1.78 billion shares topped the 1.49 billion shares that changed hands yesterday.