NEW YORK - Stocks fell on Friday after the price of oil hit a record and consumer sentiment data came in surprisingly weak, reviving concerns over spending.

The unease about the state of the consumer outweighed earlier optimism following a surprise rise in U.S. housing starts and stronger-than-expected earnings from retailers Nordstrom and Abercrombie & Fitch .

U.S. consumer confidence tumbled to its lowest in 28 years this month, according to the Reuters/University of Michigan Surveys of Consumers, as short-term inflation expectations hit their highest since the stagflation era of the early 1980s.

©REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange, April 29, 2008.

The price of oil shot to a record high near $128 a barrel after Goldman Sachs , the most active investment bank in energy markets, sharply raised its price forecast for the second half of 2008.

"The obvious impact of higher energy prices is that consumers have less disposable income and their confidence drops," said Joe Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania. "Businesses have to pass along the costs and the result is an inflationary effect."

The Dow Jones industrial average <.DJI> fell 86.96 points, or 0.67 percent, to 12,905.70. The Standard & Poor's 500 Index <.SPX> declined 7.30 points, or 0.51 percent, to 1,416.27. The Nasdaq Composite Index <.IXIC> lost 21.54 points, or 0.85 percent, to 2,512.19.

Housing starts rose by a surprisingly strong 8.2 percent in April and building permit applications turned up for the first time in five months, the Commerce Department said. But all of the increase was due to a huge rebound in the multifamily sector, which saw a sharp decline in March. The single-family sector actually declined.

Shares of energy companies such as Exxon Mobil were the top boost to the S&P 500. The S&P index of energy shares <.GSPE> was up 1.7 percent.

Chevron Corp gained 1.5 percent to $99.94 and Exxon Mobil rose 1.1 percent to $92.29.

Upscale department store chain Nordstrom's shares rose 1.5 percent to $37.83. While the weak U.S. economy took its toll, investors had expected worse as shoppers' ability to spend has been squeezed by high gasoline prices, rising food costs and a deteriorating housing market.

Retailer Abercrombie & Fitch Co reported higher quarterly profit that topped Wall Street estimates. Shares were off 0.2 percent to $75.94.

An index of retailing stocks <.RLX> was down 1.8 percent.

Fannie Mae , the largest source of U.S. home financing, said it cut the amount of down payments required on mortgages it purchases, a move analysts said may boost housing affordability. Fannie Mae's shares fell 1.6 percent to $29.75.