July 3 (Bloomberg) -- Most U.S. stocks fell, completing the longest streak of weekly declines in four years, after a reduced sales forecast by Nvidia Corp. outweighed speculation the Federal Reserve will hold off raising interest rates.

The Standard & Poor's 500 Index gained 0.1 percent to 1262.9 after earlier dipping below 1,252.12, a 20 percent decline from its Oct. 9 record. Nvidia, the second-biggest maker of computer-graphics chips, plunged the most since 2004. Freddie Mac tumbled, helping drag the S&P 500 Banks Index to a 12-year low, after saying it is ``unlikely'' to raise capital this month. General Electric Co. and General Motors Corp. advanced after a drop in jobs spurred traders to bet the Fed will keep the overnight lending rate between banks at 2 percent.

More than five stocks retreated for every three that rose on the New York Stock Exchange. The S&P 500 climbed 1.38 points, paring its weekly drop to 1.2 percent, the fifth straight retreat. The Dow Jones Industrial Average, which closed in a bear market yesterday, added 73.03, or 0.7 percent, to 11,288.54. The Nasdaq Composite Index lost 6.08, or 0.3 percent, to 2,245.38 as Nvidia plunged 31 percent.

``Staying in this economic malaise for an extended period of time seems likely,'' said Michael Strauss, the Wilton, Connecticut-based chief economist and market strategist at Commonfund, which oversees about $43 billion. ``Input cost pressures and the squeeze of profit margins because of the lack of consumer demand may make earnings more challenging and I think the equity market has been reflecting that.''

Bear Market Brink

The S&P 500 earlier fell below the 1,252.12 threshold that marks a 20 percent bear market retreat. The slide was limited by a third straight rally in Lehman Brothers Holdings Inc. securities firm. Record oil prices and signs the U.S. economy is slowing pushed steelmakers and coal producers in S&P indexes down more than 10 percent this week, leaving the S&P 500 with a 14 percent decline in 2008.

U.S. exchanges closed at 1 p.m. New York time ahead of the Independence Day holiday tomorrow. Nvidia sank $5.54 to $12.49, the lowest since July 2006. Sales this quarter will fall to between $875 million and $975 million, the company said. The second-biggest U.S. maker of graphics processors predicted in May that revenue would decline 5 percent from the previous period's $1.15 billion, indicating about $1.1 billion. Nvidia will also record costs of as much as $200 million because of a defect in some laptop chips.

Chip Stocks

An index of companies in the S&P 500 that produce semiconductors and related equipment slid 2.1 percent, the steepest drop among 24 industries. Intel Corp., the world's largest chipmaker, lost 27 cents to $20.66.

Freddie Mac declined $1.42 to $14.50, the lowest since March 1995. The second-largest U.S. mortgage-finance company said it's ``unlikely'' to raise capital until after reporting second-quarter earnings next month. Executives told investors in May the company would secure $5.5 billion in additional reserves by ``mid-year'' to combat loan delinquencies.

AT&T Inc. dropped 31 cents to $32.58 after Credit Suisse reduced profit estimates for the largest U.S. phone company, saying a slowing economy and increased competition will reduce earnings.

The S&P 500 Managed Health Care Index tumbled 6 percent to the lowest level since November 2004 after analysts downgraded UnitedHealth Group Inc., Aetna Inc. and Health Net Inc.

UBS AG lowered UnitedHealth's rating to ``neutral'' from ``buy.'' Aetna and Health Net were downgraded to ``sell'' from ``neutral'' at Goldman Sachs. Both analysts cited declines in commercial membership, growth in medical expenses and stronger price competition.

UnitedHealth, Aetna

UnitedHealth, the largest U.S. health insurer, tumbled $2.16 to $22.96. Aetna, headquartered in Hartford, Connecticut, fell $2.65 to $37.14. Health Net, the Woodlands Hills, California- based insurer, lost $3.09 to $22.55.

Futures trading showed 85 percent odds that policy makers will keep the central bank's benchmark interest rate at 2 percent next month, up from a 75 percent chance yesterday. The Labor Department said payrolls fell by 62,000 in June, the sixth straight month of declines. Economists surveyed by Bloomberg had forecast a decrease of 60,000 jobs. The jobless rate remained at 5.5 percent.

U.S. service industries unexpectedly contracted in June as a gauge of prices soared to a record and employment reached an all- time low. The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, decreased to 48.2, the lowest level since January, from 51.7 in May.

GE, GM Rise

GE, the world's fifth-largest company by market value, added 40 cents to $26.91. Sterne, Agee & Leach analysts wrote in a research note that it's ``highly unlikely'' GE will lose its top credit rating and predicted the company will report second- quarter earnings that meet analysts' estimates.

GM, which fell to the lowest level since 1954 yesterday, climbed 14 cents to $10.12.

Procter & Gamble Co., the consumer-products maker that gets about 23 percent of its sales from Europe, gained 98 cents to $63.67. European Central Bank President Jean-Claude Trichet played down prospects of further interest-rate increases, saying the quarter-point hike today will help bring inflation back below 2 percent.

Europe's Dow Jones Stoxx 600 Index climbed 0.9 percent.

Penn National Gaming Inc. gained $1.06 to $29.66. The company's $6.1 billion takeover by private-equity investors Fortress Investment Group LLC and Centerbridge Partners LP was scrapped. Penn will receive $225 million to terminate the takeover and $1.25 billion in preferred equity. Shares of the Wyomissing, Pennsylvania-based company fell 16 percent over the previous five sessions.

Zions Bancorporation fell the most in eight years after the sale of its preferred shares fell short. Zions sold $45.7 million in perpetual preferred stock after offering $150 million of the shares, the lender said in a regulatory filing today. The stock lost $4.57, or 14 percent, to $27.05. The S&P 500 Banks Index lost 1.7 percent.

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.

Last Updated: July 3, 2008 13:43 EDT