By msnbc.com news services

U.S. stocks slipped Wednesday, indicating the SP 500 may snap a three-day winning streak after weaker-than-expected euro zone economic data and ahead of a report on the U.S. housing market.

European shares fell for a second straight session as recession concerns increased after data showed the euro zone’s service sector unexpectedly shrank and amid residual worries about Greece despite its success in getting a bailout.

But even with the weak European data, market sentiment remained positive in a market that has seen the benchmark SP index rise 8.3 percent for the year on improving U.S. data and hopes the euro zone debt crisis could be held in check.

“We still have a slowing economy in Europe. It’s just a function of how long their shallow recession lasts, but we will take a shallow recession over what the alternative was going to be, if not for the Greek deal and the ECB’s intervention,” said Art Hogan, managing director of Lazard Capital Markets in New York.

Dell Inc slumped after the world’s No. 3 personal computer maker forecast revenue below expectations late Tuesday.

Toll Brothers Inc dropped after the luxury homebuilder swung to a quarterly loss as fewer deliveries and more contract cancellations hurt revenue.

Garmin Ltd jumped after reporting a better-than-expected quarterly profit as revenue from its personal navigation devices rose and demand for its outdoor and fitness products jumped.

Computer maker Hewlett-Packard Co is set to report earnings later Wednesday.

Other companies due to announce results later in the day include Express Scripts Inc, TJX Cos Inc and Analog Devices Inc.

According to Thomson Reuters data through Tuesday morning, of the 418 companies in the SP 500 that have reported earnings, 64 percent have topped analysts’ expectations.

Wells Fargo Co is buying an energy lending business from BNP Paribas SA in the U.S. bank’s latest acquisition from a European bank seeking to shrink its balance sheet.

Asian shares eked out modest gains on doubts about Greece and concerns grew about rising oil prices.

On Tuesday the Dow Jones industrial average finished up 15.82 points, or 0.12 percent, at 12,965.69 after briefly breaking 13,000 for the first time since May 2008.

Reuters contributed to this report.

CORALVILLE, Iowa — When the leaders of this small Iowa city became desperate to land a new department store, they didn’t have to look far: They lured one from the city next door, along with up to 100 jobs.

The store called Von Maur agreed to leave Iowa City for a platter of incentives offered by Coralville, which promised to put up a bigger, $9.5 million building, to provide a $1.5 million parcel of land and to discount the store’s property tax bill. It even offered $650,000 to cover any penalties related to the store’s departure.

As the economy slowly strengthens, neighboring cities and states can be pitted against one another in the competition for jobs and development. But it’s not always clear how many positions are actually created, rather than just poached and shuffled around. And some people question whether the deals are worth the high cost.

“I think it’s ridiculous,” Amber Wherry said after buying a pair of jeans at Von Maur in Iowa City, expressing concern about what will happen to Sycamore Mall when the store moves five miles to the new location, probably sometime in 2013.

Coralville first tried to negotiate with Nordstrom’s, Target and others, but those companies weren’t interested or the talks fell apart. Local leaders say the deal with Von Maur will attract other stores and restaurants to a new retail development. But Iowa City officials are bitter.

“It’s a big blow to that mall and a big blow to that area of town,” said Rod Sullivan, a supervisor in Johnson County, which includes both cities.

Communities of all sizes are launching a dazzling number of taxpayer-funded schemes to bring in new businesses or keep existing ones. They’re giving grants and loans, cutting business taxes, building new infrastructure and bending the ears of anyone willing to hear a sales pitch.

The competition, which includes politicians of both parties, is often just spirited jousting among rivals. But in extreme cases, cities have been willing to raid their neighbors in the quest for jobs.

“You don’t have to be a mathematical wizard to figure out that’s never going to pay for itself,” said Peter Fisher, research director of the Iowa Policy Project, a think tank that has estimated the value of Von Maur’s incentives at $18 million. “It’s simply not economic development. You are moving a store from one place to another. It doesn’t do anything to increase the economy of Johnson County.”

Making matters worse, he said, Iowa City residents are helping subsidize the move because Coralville is diverting tax money from the county and schools to pay for the project.

The system known as tax-increment financing allows cities to use property tax revenue in once-blighted or undeveloped areas to pay for incentives to attract businesses and for improvements such as streets and utilities. Every state but Arizona has authorized its own system.

But critics say the incentives have strayed from their original mission and are increasingly used to recruit employers to suburban developments at high cost and questionable benefit. Tax revenue is diverted from education and government services without much accountability.

Tax-increment financing districts “are a very popular economic tool. In effect, they are a way of raising money without raising taxes,” said Richard Briffault, a Columbia University law professor who has written about the growth of TIFs. “They are widespread, but there’s also pushback out there.”

California Gov. Jerry Brown last year eliminated tax-increment financing when he signed a bill closing 400 redevelopment agencies.

Officials elsewhere are worried about what might happen in their states, said Toby Rittner, president and CEO of the Council of Development Finance Agencies, which represents 300 state and local government agencies. They are mobilizing to defend what they consider a powerful development tool.

“It’s really tough to tell a community they shouldn’t do something when they are looking at it from the perspective of, ‘We need jobs. We need the tax base,’” he said.

The Von Maur deal has added to the momentum for changes in Iowa. Lawmakers are now considering banning cites from using the incentives to steal businesses from their neighbors. And some want to require additional study of the economic benefit of projects before they are approved.

Iowa City and Coralville are both financially stable and have low unemployment.

But leaders in Iowa City say Von Maur’s closure will be devastating for Sycamore Mall, where a number of other stores have closed in recent weeks. A spokeswoman for Von Maur, a Davenport, Iowa-based chain, declined to comment.

Elected officials in Coralville, a relatively wealthy city of 19,000 with big box stores and affluent neighborhoods straddling Interstate 80, aren’t backing down. They say they went after Von Maur only after learning its Iowa City location was struggling and was considering moving.

Coralville Mayor Jim Fausett said the development that will house Von Maur will transform what once was an industrial wasteland into a destination for shoppers. He credited the deal with helping persuade a brewpub to open nearby and drawing interest from other restaurants. New businesses could eventually mean hundreds more jobs in the retail, service and construction industries.

“It’s finally now starting to really move forward,” he said. “We think it’s the right development for the area.”

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Brendan Mcdermid / Reuters

Traders work on the floor of the New York Stock Exchange Tuesday.

By msnbc.com news services

Updated at 4:00 p.m. ET:

Wall Street closed Tuesday mixed as shares pulled back after the Dow breached 13,000 for the first time since May 2008, the latest big move in stocks’ recent rally.

Greece’s securing a bailout to avoid a disorderly default initially supported stocks, but investors said the news had been priced in to the market.

The 13,000 level, which the Dow first moved above briefly in morning trading, doesn’t hold a great deal of significance to market analysts, but “it’s nice to see a symbolic number,” Art Cashin, UBS director of floor operations, told CNBC.

The Dow last moved above 13,000 on an intra-day basis on May 20, 2008. It last closed above that level on May 19, 2008.

Climbing oil prices gave investors a reason to sell Tuesday. U.S. crude oil prices rose to a nine-month high amid Iran supply worries.

Signs of improvement in the economy and stabilization of Europe’s debt crisis have driven the Dow more than 20 percent higher since late last year, while the SP has climbed more than 8 percent so far this year.

Euro zone finance ministers agreed on a 130 billion euro ($172 billion) rescue for Greece to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.

“We’re running into some minor selling pressure given the extent of the rally we’ve seen,” said Fred Dickson, chief market strategist at D.A. Davidson Co. in Lake Oswego, Oregon, despite the upbeat news on Greece.

Even with the bailout, Greece faces a long road to economic recovery. European Union officials said the Greek economy will only return to growth in 2014 after a recession that will shrink output by 17 percent.

Results from retailers were mixed. Wal-Mart Stores Inc shares were the top drag on the Dow, falling after its quarterly profit came in short of expectations.

Home Depot Inc shares were up after the home improvement chain’s quarterly profit beat estimates.

Related:

Top finance professor bullish on the stock market

Reuters contributed to this report.

Can the Dow move higher? Discuss on our Facebook page.

Chip Somodevilla / Getty Images

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Budget Committee.

By msnbc.com staff

Treasury Secretary Timothy F. Geithner has done a better job for bond investors than his predecessor Robert Rubin, but not as well as the previous head of the Treasury Department Henry Paulson, according to an analysis by Bloomberg News.

Geithner took over at Treasury during the worst financial crisis since the Great Depression, and under his watch the nation has lost its AAA credit rating and seen its public debt almost double, rising from $5.75 trillion to $10 trillion.

Still, since Geithner assumed his office, in January 2009, returns on Treasuries have exceeded the bonds of other countries by 0.3 percentage point on an annualized rate, Bloomberg said, citing Bank of America Merrill Lynch index data. That return is less than Paulson’s 7.5 percentage points, but better than Rubin’s record. Under his leadership Treasuries lagged behind foreign issues by 1.6 points, Bloomberg said.

Geithner said recently he will not be asked to remain in his post if President Barack Obama wins this November’s election.

Geithner’s Treasury has kept bond yields near record lows and has held demand for government securities at all-time highs.

Geithner’s lengthening of the average maturity of U.S. debt to 62.8 months, the longest since 2002 under former Treasury Secretary Paul O’Neill, may shore up credit quality and depress yields amid contained inflation, according to the Bloomberg report.

By msnbc.com news services

With the Dow Jones industrial average moving back above 13,000 for the first time since May 2008, you might be considering adopting a bullish stance and getting into the stock market.

You’d be in good company if you did.

Jeremy J. Siegel, a professor of finance at the Wharton School, appeared on CNBC Tuesday to discuss the outlook for the market. He said he sees a second leg upward for stocks, and also the possibility of the Dow moving up to 17,000.

Related:

Dow crosses 13,000 for the first time since May 2008

Brendan Mcdermid / Reuters

Traders work on the floor of the New York Stock Exchange Tuesday.

By msnbc.com news services

Updated at 11:30 a.m. ET:

U.S. stocks moved higher in a choppy session Tuesday, with the Dow Jones industrial average crossing the 13,000 level for the first time since May 2008.

The 13,000 level doesn’t hold a great deal of significance to market analysts, but “it’s nice to see a symbolic number,” Art Cashin, UBS director of floor operations, told CNBC. The Dow last moved above 13,000 on an intra-day basis on May 20, 2008. It last closed above that level on May 19, 2008.

Signs of improvement in the economy and stabilization of Europe’s debt crisis have driven the Dow more than 20 percent higher since late last year, while the SP has climbed more than 8 percent so far this year.

Euro zone finance ministers agreed on a 130 billion euro ($172 billion) rescue for Greece to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.

“This is the most solid agreement Greece has had, with actual money behind it, and that makes the market optimistic,” said Phil Flynn, senior market analyst at PFG Best in Chicago.

Even with the bailout, Greece faces a long road to economic recovery. European Union officials said the Greek economy will only return to growth in 2014 after a recession that will shrink output by 17 percent.

“If you say this is definitely the end of the story, then that shows you’re not familiar with the history of the issue,” Flynn said. “We’re cautiously optimistic, but we’re not likely to move significantly higher from this point since we’ve rallied going into it.”

Wal-Mart Stores Inc lost 4 percent to $60.01 and was the top drag on both the Dow and SP after its quarterly profit came in short of expectations.

Home Depot Inc climbed 1 percent to $47.18 after the home improvement chain’s quarterly profit beat estimates.

Macy’s Inc climbed 3.1 percent to $37.41 as the department store group posted higher profit and forecast more sales gains this year.

Kraft Foods Inc advanced 1.5 percent to $38.59 after the foodmaker forecast earnings growth of at least 9 percent this year even as it prunes its portfolio of North American brands. Kraft, Wal-Mart and Home Depot are all Dow components.

Apple Inc was up 1.9 percent to $511.54 after the U.S. International Trade Commission ruled the iPhone maker did not infringe patented technology owned by Android phonemaker HTC Corp.

Dell Inc and software company Intuit Inc were due to report results after Tuesday’s closing bell.

Earnings season continued to wind down this week, with 59 companies scheduled to report. According to Thomson Reuters data through Tuesday morning, of the 418 companies in the SP 500 that have reported earnings, 64 percent have topped analysts’ expectations, which is below the beat rate for recent quarters.

Related:

Top finance prof. bullish on the stock market

Reuters contributed to this report.

Can the Dow move higher? Discuss on our Facebook page.

By msnbc.com news services

U.S. stocks are set to rise at Tuesday’s open after euro zone finance ministers secured a deal that will enable Greece to avoid a March default.

A deal on the 130 billion euro ($172.47 billion) bailout was reached after Greece was forced to accept unpopular fiscal measures, and private bondholders agreed to steeper losses.

After hitting a seven-month high on Monday, the FTSEurofirst 300 index of top European shares lost 0.5 percent and the euro shed 0.1 percent on Tuesday as investors booked profits after the agreement.

Analysts said the deal was already priced into the market, which showed a muted response as initial optimism waned on questions about Greece’s dismal economic outlook.

“We’ve had a very strong market of late, partly driven by expectations of a Greek deal. Now that we have it, the market will look for a near-term driver,” said Andre Bakhos, director of market analytics at Lek Securities in New York.

“Any pullbacks will be looked at as potential entry opportunities as investors, in many cases, are underperforming the benchmark SP 500. As the market keeps impressing, market short-players will be forced to reconsider the macro bets they’ve made, and thus a run to cover could propel another upside surge.”

The SP 500 is up 8.2 percent for the year.

Apple Inc edged up 0.3 percent to $503.80 in premarket trading after the U.S. International Trade Commission ruled the iPhone maker did not infringe patented technology owned by Android phonemaker HTC Corp.

Separately, a Chinese court will deliberate on a request by troubled technology company Proview to halt the sale of iPads in Shanghai.

Home Depot Inc climbed in premarket after the home improvement retailer’s quarterly profit beat estimates.

Kraft Foods Inc edged down after the maker of Oreo cookies, Cadbury chocolate and Oscar Meyer meats reported higher earnings that met expectations.

Wal-Mart Stores Inc dropped after it said it earned $1.51 per share from continuing operations in the fourth quarter versus its forecast of $1.42 to $1.48 per share.

Separately, Wal-Mart said it was taking a controlling stake in a Chinese e-commerce firm as it sought new revenue sources to fend off rising competition in the world’s fastest-growing major economy.

Dell Inc was due to report results later Tuesday.

Dutch group TNT Express, which rejected a 4.9 billion euro ($6.5 billion) takeover offer from United Parcel Service Inc, will focus on its European business and look for buyers or partners for troubled units in Brazil and China. Investors are betting UPS will raise its offer or rival FedEx Corp may enter the fray.

U.S. engineer URS Corp will buy Canadian oilfield services company Flint Energy Services Ltd for C$1.25 billion ($1.25 billion) to expand its presence in the oil and gas sector.

Futures exchange operator CME Group Inc and an Omani sovereign fund boosted their stake in the Dubai Mercantile Exchange after a cash infusion on Tuesday.

AES Corp, the first U.S. power producer to enter China about two decades ago, is looking to sell all or some assets there, sources said.

Reuters contributed to this report.

NEW YORK — The number has been repeated so often by presidential prognosticators that it’s an article of faith: No president has been re-elected since World War II with an unemployment rate higher than 7.2 percent.

But the stock market turns out to be a pretty good predictor, too.

The Dow Jones industrial average has soared 62 percent since President Barack Obama took the oath of office during some of the darkest days of the Great Recession. The Dow was just below 8,000 then and stands near 13,000 today.

If a recent study of stock markets and presidential elections is any guide, Obama can start preparing his second inaugural address.

“There’s something to this,” says Phil Orlando, chief equity market strategist at Federated Investors, the $370 billion investment firm.

There are plenty of other signs often consulted for their political forecasting power, like whether a team from the National Football Conference or the American Football Conference wins the Super Bowl.

This one makes a little more sense: When the economy picks up and unemployment falls, confident investors put money into riskier investments and stocks rise. Voters are likely to reward the sitting president with another four years.

“The stock market reflects trends in the economy,” Orlando says. And as any political operative can attest, in a presidential campaign, it’s the economy — you know the rest.

The study was backed by the Socionomics Institute, a think tank studying how a shared mood among a group sways its members’ actions. Their researchers dug up data on economic output, prices, unemployment and stock-market performance and matched them to presidential elections.

They went all the way back to the first re-election in 1792, when George Washington beat John Adams and won a second term as the president.

The researchers found a solid connection between the stock market’s direction in the three years leading up to Election Day and the election results. Gains of 20 percent or more for the Dow nearly assured victories for sitting presidents. Drops of 10 percent or worse got them tossed out.

Voters returned Calvin Coolidge to the White House in 1924, just as the Roaring ’20s started roaring. They booted Herbert Hoover in 1932 while the stock market suffered through a three-year plunge.

The authors of the Socionomics Institute study say everything can be traced back to the prevailing optimism or pessimism. Their organization studies “the social mood.” But how do you read the mood of a whole country?

The authors say that the stock market is the best available gauge of how the country is feeling, “because investors can act swiftly to express their optimism or pessimism.” Bad day? Time to sell. Things looking up? Time to buy.

“An increasingly positive social mood produces a rising stock market as well as votes for the incumbent, and an increasingly negative social mood produces a falling stock market as well as votes against the incumbent,” they write.

To the authors, it’s the mood that determines the election, not the stock market. The stock market is just a reliable gauge of the national temper, an incredibly accurate mood ring.

In recent successful re-election campaigns, the connection appears clear. Ronald Reagan won re-election in 1984 following the Dow’s 41 percent surge and despite an unemployment rate of 7.2 percent. Bill Clinton was awarded a second term after the Dow gained 63 percent in the three years leading up to Election Day.

The Bottom Line: Obama may keep his job even if you lose yours

But there are misfires. James Madison, for instance, won re-election in 1812 despite a 34 percent drop in the market over three years. George H.W. Bush lost to Bill Clinton even though the Dow rose 51 percent over his term in office.

Doug Wead, a presidential historian who served in the elder Bush’s administration, says the stock market theory sounds suspect.

“The stock market isn’t even a good indicator of the economy,” he says. “You can have the stock market going up while the rich get richer and the poor get poorer.”

Story: This could be week stocks’ rally comes to an end

There’s also the danger of oversimplifying — relying on one number, in this case the Dow’s performance, while ignoring everything from scandals and wars to third-party candidates.

In William Howard Taft’s last three years in office, the Dow lost 12 percent, and Taft lost the 1912 election to Woodrow Wilson. But if Theodore Roosevelt hadn’t split from the Republicans and run under the Progressive Party banner against Taft that year, Taft might have returned to office.

It was a similar story with the first President Bush in 1992. The independent candidate Ross Perot siphoned off votes from both candidates, but historians generally believe more came from Bush’s Republican camp. Clinton won with just 43 percent of the popular vote.

The Bottom Line: The 10 richest US presidents

The economy also slipped into a recession during Bush’s second year in office, and as he campaigned for re-election, the unemployment rate hovered well above the dreaded 7.2 percent mark.

Orlando, of Federated Investors, says a change in any single statistic won’t guarantee a president gets re-elected. Analysts should consult a range of figures. One that looks less reassuring for Obama is his approval rating, he says.

No president has been re-elected with a Gallup approval rating below 48 percent approaching Election Day. Obama’s numbers are improving, and the election is more than eight months away, but for now he’s teetering on the edge — 48 percent.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

NEW YORK — If upcoming earnings from U.S. retailers are as unimpressive as the rest of the profit season has been, Wall Street could face a tough time justifying a stock market at nine-month highs.

Even with a Greece deal now in the works and the U.S. economic recovery showing stronger momentum, strategists think the market could face resistance in a push higher.

Less than two months into the year, the benchmark Standard Poor’s index is up more than 8 percent and has already exceeded many analysts’ forecasts for the year.

The problem is the market has not seen as much upbeat news out of this earnings season as it has in recent ones.

“Earnings have generally come in more disappointing than they have been,” said Robert Van Batenburg, head of equity research at Louis Capital in New York. “I don’t think there’s a lot of fireworks coming” from last week’s financial results.

The index ended Friday at 1,361, its highest since May 2011. That was above a Reuters poll forecast in December that the index would end 2012 at 1,340.

A break above 1,370 would put the SP 500 at its highest since June 2008, before the September 2008 collapse of Lehman Brothers.

The Dow industrial average is fast approaching the key psychological level of 13,000, while the Nasdaq has been trading at its highest since 2000 and is near the 3,000 level.

SP 500 earnings performance has so far trailed recent quarters in terms of beating Wall Street’s estimates. The percentage of companies beating analyst profit expectations is at 64 percent, according to Thomson Reuters data.

While that percentage has improved since the start of the earnings season, it’s below the average beat rate for the past four quarters of 70 percent, the Thomson Reuters data showed.

This week brings results from top retailers, including Wal-Mart and Home Depot. Companies in the consumer discretionaries group so far have a beat rate of 70 percent, above the average for the SP, but many retailers in the group have yet to report.

The week is seen as one of the last big ones of the earnings period.

With results in already from 404 SP 500 companies, investor focus already may have shifted away from earnings.

That leaves a lot of focus on the outlook for Europe and the U.S. economy. Data on existing- and new-home sales is expected this week.

News of a deal for Greece, expected to help the country avoid a messy default, has helped drive stocks higher as has stronger data on the U.S. economy.

Euro zone finance ministers are set to meet on Monday about the financial rescue for Greece. U.S. markets will be closed for the Presidents Day holiday.

The market’s recent run higher has put it at some key technical levels that some say could cause it to stumble.

“The market is likely to reach a short-term top,” said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

The percentage of New York Stock Exchange stocks trading above their 50-day moving averages is in the 85 percent to 90 percent range, he said, which is typically a signal that the market is overbought.

He sees a pullback to the 1,260 to 1,270 range on the SP 500 in the near term.

Some strategists said they would see a break above 1,370 as a key buying opportunity.

“You break out to 13,70 to 1,380 and then you have to say to yourself something real is happening here. I’m kind of on the sidelines until I see that, but I will be jumping in if that starts happening,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The CBOE Volatility index, Wall Street’s fear gauge, was down 7.5 percent on Friday and has been below the 25 level for more than two months, suggesting investors are less worried about the market’s outlook.

Copyright 2012 Thomson Reuters. Click for restrictions.

NEW YORK — Gasoline prices have never been higher this time of the year in the U.S.

At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.

“You’re going to see a lot more staycations this year,” says Michael Lynch, president of Strategic Energy Economic Research, referring to people staying at home on their vacations. “When the price gets anywhere near $4, you really see people react.”

Already, W. Howard Coudle, a retired machinist from Crestwood, Missouri, has seen his monthly gasoline bill rise to $80 from about $60 in December. The closest service station is selling regular for $3.39 per gallon, the highest he’s ever seen.

“I guess we’re going to have to drive less, consolidate all our errands into one trip,” Coudle says. “It’s just oppressive.”

The surge in gas prices follows an increase in the price of oil.

Oil price surge could dampen recovery

Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that’s imported by U.S. refineries and turned into gasoline and other fuels. Its price has risen 11 percent so far this year, to around $119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the U.S., is up 4 percent to around $103 a barrel. That’s 19 percent higher than a year earlier.

Higher gas prices could hurt consumer spending and curtail the recent improvement in the U.S. economy.

A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion. That’s only 0.2 percent of the total U.S. economy, but economists say it’s a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 percent in the fourth quarter, a rate considered modest following a recession.

High oil and gas prices now set the stage for even sharper increases at the pump because gas typically rises in March and April.

Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gas are sold off before March, when refineries need to start making a new formula of gasoline that’s required in the summer.

That can mean less supply for service stations, resulting in higher gas prices. And summertime gasoline is more expensive to make. The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.

The Oil Price Information Service predicts that gasoline could peak at $4.25 a gallon by the end of April. That would top the record of $4.11 in July 2008.

The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That’s up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon.

Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington D.C. and California. This isn’t unusual — states on the coasts charge some of the nation’s highest gas taxes.

High gas prices put a strain on many people’s budgets.

Americans spent 8.4 percent of their household income on gasoline last year when gas averaged an all-time high of $3.51 a gallon. That’s double the percentage a decade ago. They could pay even more this year, even though demand is the lowest in 11 years as people drive fewer miles in more efficient cars, says Tom Kloza, chief oil analyst at OPIS.

Gary Goodman commutes into Manhattan from Edgewater, New Jersey, because gas, tolls and parking make the cost of driving prohibitive.

Goodman, an accountant, commutes by bus. He uses his car mostly for trips to the grocery store or for occasional nights out. He says he has no choice but to eat the higher gas costs.

“I already drive as little as possible,” he says.

Paul Dales, a senior economist at Capital Economics says it would take a bigger shift in the global economy — say, a deep recession in Europe or a slowdown in Asia’s manufacturing — for pump prices to drop noticeably. Either event would slow oil demand, depressing prices.

But experts expect demand to keep rising. World oil demand is expected to increase by another 1.5 percent to 89.25 million barrels a day in 2012, according to the Energy Information Administration.

In the short term, tensions with Iran are feeding fears that oil supplies could be blocked.

The U.S. and Europe are tightening economic sanctions against Iran over what the West believes is Iran’s attempt to build a nuclear bomb. World leaders fear Israel may be planning a strike against Iran, the world’s third largest oil exporter.

In response, Iran has threatened to withhold its own oil deliveries and to block the Strait of Hormuz, a waterway along its coastline through which one-fifth of the world’s oil flows.

On Friday, an international banking clearinghouse crucial to Iran’s oil sales said it is prepared to discontinue services to Iranian financial institutions being targeted by the EU and U.S. sanctions. That could ratchet up the pressure on Iran, but also send oil prices soaring.

The price of Brent crude fell 53 cents on Friday to $119.58. WTI gained 93 cents to $103.24.

Gas prices are already an issue in the presidential campaign. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence — and lower pump prices.

“Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel,” Gingrich said at a campaign event in Los Angeles Thursday.

Story: GOP sees chance to attack Obama on rising gas prices

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.