Stocks plunged on Monday as anxiety over another hurricane slamming into the Gulf Coast sent oil prices surging beyond $67 a barrel, while investors worried about a possible rate increase by the Federal Reserve the following day.


The Dow Jones Industrial Average dropped 84.31, or 0.8 percent, to 10,557.63. The Standard & Poor's 500 Index fell 6.89, or 0.6 percent, to 1,231.02. The Nasdaq Composite Index sank 15.09, or 0.7 percent, to 2,145.26.


Crude futures gained more than $4 a barrel as Wall Street learned that Tropical Storm Rita was expected to strengthen into a hurricane late Monday and could cause refinery production problems as it builds and moves toward the Gulf of Mexico. Crude for October delivery jumped $4.39 to settle at $67.39 a barrel on the New York Mercantile Exchange.


And analysts bet that the Federal Reserve was likely to push through its 11th consecutive hike in U.S. interest rates on Tuesday, raising rates a quarter-percentage-point to 3.75 percent.


Among local companies, shares of KB Home fell 1.8 percent to $73.65 after the L.A.-based homebuilder announced it is opening a unit to target the rapidly appreciating Washington, D.C., housing market. The new Mid-Atlantic unit will build houses in the nation's capital, Maryland and Virginia where home prices jumped twice the U.S. national average in the second quarter.


Image Entertainment Inc. slipped 3.6 percent to $4.27 after its board of directors retained L.A.-based Salter Group to help it weigh an unsolicited offer by film studio Lions Gate Entertainment Corp. The Chatsworth-based producer and distributor of CDs and DVDs said the Salter Group would provide independent financial advisory services for evaluating the Lions Gate proposal.


Guess Inc. dipped 2.7 percent to $21.96 after the apparel company said it and Fossil Inc. ended negotiations for a licensing agreement under which Fossil would have produced and distributed Guess watches. In a statement, the Richardson, Tex.-based watchmaker said it was unable to settle on certain material terms of the agreement with Los Angeles-based Guess. The 10-year deal was supposed to begin in January 2007.


And shares of Fremont General Corp. rose 1.3 percent to $23 after Fitch Ratings upgraded the senior debt rating of the Santa Monica-based holding company for Fremont General Credit Corp. Fitch said the current ratings are due to Fremont's profitability, good market position in sub-prime lending and commercial real estate operations, strong capital and substantial loan loss reserves.

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