US stocks drop as Iraq violence worsens

New York - Wall Street stocks fell decisively on Thursday on escalating violence in Iraq that pushed US oil prices to their highest level in nearly nine months.

The Dow Jones Industrial Average slumped 109.69 points (0.65%) to 16 734.19.

The broad-based S&P 500 lost 13.78 (0.71%) at 1 930.11, while the tech-rich Nasdaq Composite Index sank 34.30 (0.79%) to 4 297.63.

Jihadists pushed toward Baghdad on Thursday after capturing a town to the north, as US President Barack Obama said his national security team "is looking at all the options".

With the militants approaching the capital, forces from Iraq's autonomous Kurdish region took control of disputed northern oil hub of Kirkuk to protect it from jihadist attack, officials said.

US oil prices shot up more than 2% to $106.53 a barrel, the highest level since September 18, 2013.

"It's all about the Iraq situation," Peter Cardillo, chief market economist at Rockwell Global Capital, said of the drop in US equities.

A sustained rise in oil prices "would bite into economic activity and into consumer spending and that would obviously not be good for our economy", he said.

Several leading energy companies rose with the surge in oil prices, including Dow component Chevron (+0.7%), ConocoPhillips (+1.1%) and Marathon Oil (+1.7%).

But the rise in oil prices weighed on airlines, which could be forced to pay higher jet fuel prices. American Airlines fell 4.9%, Delta Air Lines dropped 5.4% and United Continental lost 5.9%.

Amazon launched a streaming music service as part of its "Prime" subscription-based service. Amazon said the service was an added benefit for subscribers, although the catalogue of more than one million songs is far smaller than offerings from some rival services. Shares fell 2.8%.

Struggling yoga apparel maker Lululemon Athletica sank 15.7% after forecasting earnings for the upcoming quarter of 28-30 cents per share, below the 36c projected by analysts. The company's full-year outlook also disappointed.

Bond prices rose. The yield on the 10-year US Treasury fell to 2.59% from 2.64% on Wednesday, while the 30-year declined to 3.41% from 3.47%. Bond prices and yields move inversely.