Stocks staged a late-day rally Thursday, but failed to lift out of the red, as investors weighed a mix of economic reports, steep oil prices, and geopolitical news.
Reports out of Pakistan saying that Osama Bin Laden's right-hand man, Ayman al-Zawahri, has been surrounded near the Afghan border helped boost sentiment. But worries about further political fallout from the Madrid bombings one week ago, Spanish threats to pull out of Iraq, and another reported attack in Baghdad tempered enthusiasm.
The Dow Jones industrial average finished lower by 4.52 points, or 0.04%, to finish at 10,295.78. The broader Standard & Poor's 500-stock index ended down 1.44 points, or 0.13%, to 1,122.31. The Nasdaq composite index was the worst performer among the major market benchmarks, losing 14.32 points, or 0.73%, to 1,962.44.
Gold stocks made solid gains -- gold futures hit the $411.30 level -- on continued weakness in the U.S. dollar. Investment banks and brokerages suffered, despite strong earnings from Morgan Stanley (MWD ). "The group is lower on profit taking after a strong run-up earlier in the week," reports S&P's MarketScope. Airline and tech stocks also resumed their downtrend.
After the close of Thursday's trading, Nike (NKE ), 3Com (COMS ) and Adobe Systems (ADBE ) were expected to report their quarterly results.
There are no major economic releases scheduled for Friday.
Economic data took center stage for most of Thursday's session. U.S. weekly jobless claims fell to their lowest level in three years. In the previous week, the figure declined to 336,000, suggesting improvement in the long-slumping labor market.
The producer price index, a measure of inflation at the wholesale level, jumped 0.6% in January, more than the consensus expectation of a 0.4% increase. (Issuance of the report had been delayed since February because of technical problems.) The rise was led by higher gasoline and heating costs. The core PPI, excluding food and energy, rose 0.3% -- also higher than economists had forecast. The Philadelphia Federal Reserve Bank's March business activity survey showed that regional manufacturing fell to 24.2. vs. 31.4 in February, a greater decline than was expected. Notably, the employment index held up very well at 12.3 vs. 12.5, with 73% of firms reporting jobs openings, reports economic research firm, Informa Global Markets.
Rising oil prices worried the markets. Brent crude oil futures fell 40 cents to $33.13 in London. On Wednesday, crude closed in New York at $38.18, its highest close in 13 years.
Meanwhile, the Conference Board's February leading economic indicators were unchanged, vs. January's 0.4% rise, near estimates. Lower consumer expectations held the index at its current level.
Minutes from Federal Reserve's Open Market Committee Meeting in January reveal that the committee is convinced that a "relatively vigorous expansion" is in place, and that a more neutral stance is likely ahead, but not yet needed.
"This sounds very much like the background for subsequent mentions by policy makers that rates would eventually have to rise," reports Informa. "There are risks in an accommodative stance, with some members worried that a perceived belief that accommodative policy would be sustained was affecting markets."
In corporate news, blue-chip Microsoft Corp. (MSFT ) delivered bad news. The company and the European Commission failed to reach a settlement in a landmark antitrust case. The EU is now expected to rule against the company and levy a fine. Microsoft shares finished lower.
General Motors (GM ) was lower on news that it would recall more than four million pickup trucks to replace tailgate support cables that may corrode and fracture.
In earnings news, investment bank Morgan Stanley said quarterly earnings rose, on securities trading volume and its Discover Card business. Morgan Stanley reported net income of $1.23 billion, or $1.11 cents per share, up from 82 cents per share a year ago. The stock finished lower.
In retail, Kmart Holding (KMRT ) ended 6.9% higher after posting fourth quarter earnings of $2.78 (from the successor company) vs. a $1.61 loss (from the predecessor company) as lower expenses offset 26% lower sales. Kmart emerged from bankruptcy in May of 2003.
On the tech front, IBM (IBM ) was lower despite announcing that it made a breakthrough in the search for low-cost electronic circuits for use in items like smart cards.
Darden Restaurants (DRI ), operator of Red Lobster and other chains, said quarterly net income rose, on higher sales at its Olive Garden restaurant. But same-store sales at its Red Lobster chain were lower. Shares of Darden Restaurants shed 3%.
Invision Technologies (INVN ) said U.S. regulators are probing options trading on its stock. The maker of bomb-detection equipment agreed to be acquired by General Electric (GE ) for about $900 million this week. Shares finished somewhat higher.
Treasuries finished lower in price after a see-saw session. Towards the end of the session, prices dipped on initial reports of a capture of a key al-Qaeda operative, then retraced as reports talked of just a surrounding, reports Informa.
The Philadelphia Federal Reserve Bank's March business activity survey, which showed that regional manufacturing fell further than was expected, helped Treasuries pare losses early in the afternoon.
In currencies, the British pound was at $1.833, while the euro was at $1.238, after hitting $1.244 after the weaker-than-expected Philly Fed survey sparked a surge in dollar sales. There are also reports that Japan might reduce its intervention activities.
European stock markets finished lower, amid earnings disappointments from drug maker Bayer and insurer Allianz and news that oil giant Shell cut reserves and will delay posting its annual report. London's Financial Times-Stock Exchange 100 index fell 53.90 points, or 1.32%, to end at 4,397.90.
Germany's DAX index shed 69.36 points in a broad-based decline, or 1.78%, to 3,827.43. "The increasing cost of oil and rising U.S. producer goods prices brought sellers," says MarketScope, while key corporate reports disappointed traders.
In Paris, the CAC 40 declined 66.06 points, or 1.81%, to 3,589.98. The index suffered from New York's poor open, as well as a local terrorism scare -- later proved unwarranted -- around a suspicious package on the French Eurostar.
In Asia, markets finished mixed. The Nikkei 225 index gained 47.42 points, or 0.41%, to 11,484.28. In Hong Kong, the Hang Seng index slid 159.53 points, or 1.23%, to 12,816.19, on poor earnings news and a lackluster trading debut for a chipmaker there.