US STOCKS-Market falls in late sell-off, volume light

* Stocks extend fall as Brent crude rises to 32 month-high

* Investors bullish about earnings, but volume seen weak

* Still no agreement on U.S. budget, midnight deadline

* Indexes down: Dow 0.2 pct, S&P 0.4 pct, Nasdaq 0.6 pct

* For up-to-the-minute market news see [STXNEWS/US]
(Updates to close)

By Angela Moon

NEW YORK, April 8 (Reuters) – U.S. stocks fell late on
Friday as a spike in oil prices revived worries that inflation
would derail the recovery, jolting a market that had been
treading water ahead of corporate earnings.

The uncertain outcome of budget talks in Washington and the
prospect of a U.S. government shutdown as a midnight deadline
loomed spurred investors to buy protection ahead of the
weekend. Many traders bought short-term put options on the SPDR
S&P 500 Trust (SPY.P: Quote, Profile, Research).

“The tape is heading south in light volume. People are
hoping that nothing bad happens over the weekend,” said Michael
James, senior trader at regional investment bank Wedbush Morgan
in Los Angeles.

The surge in oil prices drove down shares of airlines and
transportation companies. The Arca Airline index (.XAL: Quote, Profile, Research) shed
2.7 percent and the Dow Jones Transportation Average (.DJT: Quote, Profile, Research)
fell 1.7 percent.

Brent crude futures (LCOK1: Quote, Profile, Research) settled above $126 a barrel,
the highest level in 32 months, as the weak dollar drove up
commodities and intense fighting in Libya raised fears of
prolonged supply cuts.

Trading volumes remained low, a sign that investors are
holding off major new bets ahead of the release of quarterly
earnings beginning next week.

The Dow Jones industrial average (.DJI: Quote, Profile, Research) was down 29.59
points, or 0.24 percent, at 12,379.90. The Standard & Poor’s
500 Index (.SPX: Quote, Profile, Research) was down 5.36 points, or 0.40 percent, at
1,328.15. The Nasdaq Composite Index (.IXIC: Quote, Profile, Research) was down 15.73
points, or 0.56 percent, at 2,780.41.

For the week, the Dow rose 0.03 percent while the S&P 500
and Nasdaq each lost 0.3 percent.

Trading volume was 6.47 billion shares on the New York
Stock Exchange, NYSE Amex and Nasdaq, compared with last year’s
estimated daily average of 8.47 billion.

The S&P faces resistance around 1,345, near its 2011 high.
Many analysts believe earnings could be the catalyst that
pushes the benchmark index through that resistance.

“If the earnings next week are robust enough, we might go
above 1,350, which is the top of the trading range. But since
the market is very complacent, we might easily turn the other
way if we see a negative outlook,” said James Meyer, chief
investment officer at Tower Bridge Advisors in West
Conshohocken, Pennsylvania.

The earnings season will begin unofficially when Dow
component Alcoa Inc (AA.N: Quote, Profile, Research) reports results after the market’s
close on Monday. JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and Google Inc
(GOOG.O: Quote, Profile, Research) are due to report later in the week.

Bullishness has risen to levels not seen since last
December before earnings, according to a survey by Investors
Intelligence.

Bucking the downtrend on Friday, commodity-related shares
rose with higher oil and metals prices. Occidental Petroleum
Corp (OXY.N: Quote, Profile, Research) rose 2.6 percent to $103.72 and the S&P Energy
index (.GSPE: Quote, Profile, Research) was up 0.4 percent.[ID:nL3E7F80GG]

Copper (CMCU3: Quote, Profile, Research) rose 2.5 percent while gold hit record highs
on Friday and silver reached its strongest level since early
1980, as investors snapped up inflation-sensitive raw materials
as a hedge. U.S.-listed shares of miner Rio Tinto Plc (RIO.N: Quote, Profile, Research)
rose 2.1 percent. [ID:nL3E7F80GG]

The White House and Congress faced a midnight deadline to
break a budget deadlock. Democratic and Republican leaders said
there was still no overall deal on government funding for the
rest of the fiscal year. [ID:nN08144565]

For graphics on S&P 500 performance during the two
government shutdowns in 1995 and 1996, see
http://r.reuters.com/guw88r.
(Reporting by Angela Moon, Editing by Leslie Adler)

US STOCKS-Market falls in late sell-off, volume light