By ANN DAVIS and PETER A. MCKAY

October 4, 2006; Page C1

Helping propel the Dow Jones Industrial Average to a new high, oil prices continued their recent skid, dropping 3.9% and boosting hopes among investors that lower energy costs will give the economy and corporate profits a boost.

As the Dow romped ahead 56.99 to 11727.34, a record close for the first time since early 2000, its one energy stock, Exxon Mobil, slid 1.59, or 2.4%, to $65.41. Of the Dow's other 29 components, 23 rose and six fell, though not as much as Exxon Mobil.

Crude for November delivery fell $2.35 to $58.68 a barrel on the New York Mercantile Exchange and is now bracing 23.82% below its peak on July 14 of $77.03. Over that same period, natural gas -- which has been falling all year due to swelling inventories -- has fallen 9.26%, to close at $5.759 per million British thermal units yesterday. Gasoline futures have plunged 37.34%, settling at $1.4567 a gallon yesterday on Nymex.

The woes for the energy sector are good news for the rest of the markets. Falling prices reduce inflationary pressures, meaning the Federal Reserve has one more reason to not raise rates. Moreover, energy-related expenses fall, benefiting nonenergy sectors.

"Whatever comes out of the energy companies' profits helps everyone else in a very tangible way," says Mike Thompson, research director at Thomson Financial. "You're really robbing Peter to pay Paul." Thomson is forecasting relatively weak earnings at energy companies in the fourth quarter, up just 2% industrywide compared with double-digit growth expected in the broader market.

The weakness in energy prices also spilled into other commodity sectors yesterday, reviving predictions that the frothy commodity market has finally entered a slowdown. Gold fell $21.40 per troy ounce, or 3.6%, to $576.30 yesterday on the Comex division of the Nymex, as the fall in crude prices reduced gold's appeal as a hedge against inflation. Silver fell 59.50 cents, or 5.2%, to $10.95 an ounce. Copper, an industrial metal used heavily in new-home construction, was down 14 cents to 3.29 yesterday and is down nearly 20% since May as new-home sales slow.

But not all commodities are in the doldrums. And many economists say energy prices have fallen so far, so fast, that it may be temporarily spreading gloom over other commodities markets that still have room to grow. A recent forecast by Barclays Capital, a unit of Barclays PLC, placed U.S. gross-domestic-product growth for 2007 at 3%, Chinese growth at 9.6% and global growth at 4.7%, "which is significantly stronger than the view that appears to be embedded in current oil prices," its analysts wrote last week.

Industrial metals with limited or falling global stockpiles such as nickel and lead are still hot commodities. Nickel has risen 11.2% on the London Metal Exchange since the crude-oil peak on July 14, because consumers are spending on stainless-steel appliances and factories around the world still need growing quantities of stainless steel. Lead is up 21.68% over this period, in part because the Chinese are buying more cars and car batteries. Although copper has dropped as new-home construction slows, it is in high demand in electric-power transmission plants.

Some key agricultural commodities including corn and wheat also have held up as seasonal and weather factors pushed them up recently. And gold remains up 11%, and silver 24%, year to date.

Kevin Norrish, commodities analyst with Barclays Capital, says that because the oil markets continue to be well supplied, the market is ignoring the possibility that geopolitical concerns will return to push prices up. The rapid drop "is encouraging selling by momentum traders. ... We continue to see oil prices as having overshot to the downside."

But the energy market is also coming to grips with a major change since 2005. After hurricanes Katrina and Rita crimped Gulf of Mexico oil and gas production, and fueled lofty price expectations, the absence this year of a big hurricane season reminded investors of how cyclical energy prices can be. Most traders have dramatically scaled back their hopes for $80-plus-a-barrel crude any time soon.

At the start of this summer, "even though we were looking at ... plenty of supply, the market kept on thinking Katrina, Katrina, Katrina," says Stephen Schork, who tracks the energy and shipping industries in a daily investment newsletter, The Schork Report. "By mid-August it was obvious this hurricane season was not going to be above normal. Without that fear premium, prices were free to fall." Cooling international tensions with Iran also played a role, he said.

Traditional stock-market investors have been gleeful at oil's fall. Some have even profited from the energy pullback by simultaneously remaining bullish on equities and betting against commodity-linked investments. William B. Smith, owner of a small New York firm that manages about $67 million for wealthy investors, says that on July 3, he began betting on the decline of crude-oil prices by taking a short position on an exchange-traded investment fund that tracks crude futures. In such a short bet, he borrowed shares of the fund, expecting to buy them back at lower prices later.

Mr. Smith says he believes the stock market was -- and still is -- gripped by a "negativity bubble," despite the new Dow record. He attributes the gloom to "all these super-spike [oil analysts] saying energy's going to put us in a recession." To him, the "overly bearish attitude" about stocks "made no sense at all" and "all the hot, fast money" going into energy was unjustifiably excited about oil prices.

Write to Ann Davis at ann.davis@wsj.com and Peter A. McKay at peter.mckay@wsj.com.