Dow Edges Up to Third Straight Record

Wholesale prices dipped, while housing starts fell to their lowest since 1997. Microsoft's CEO said some analysts' sales estimates for Windows Vista are too high

Stocks finished narrowly mixed Friday, with the Dow inching up in the final hour to a third straight all-time closing high, as investors digested softer economic data and disappointing revenue comments from Microsoft (MSFT). Oil prices climbed above $59. Options expiration and speculation involving General Motors (GM) and DaimlerChrysler (DCX) created some volatility, notes Standard & Poor's Equity Research.

On Friday, the Dow Jones industrial average nudged up 2.64 points, or 0.02%, to a record 12,767.65. The broader Standard & Poor's 500 index slipped 1.27 points, or 0.09%, to 1,455.54. The tech-heavy Nasdaq composite edged down 0.79 points, or 0.03%, to 2,496.31.

Federal Reserve Chairman Ben Bernanke's semiannual congressional testimony this week indicated the Fed will likely remain on hold, while the latest economic reports show further slowing in the economy, some analysts say. "Bernanke indicated comfort with the recent, gradual pace of decline in core inflation and the prospects for continued moderate real economic growth," says Bank of America senior economist Peter Kretzmer in a note to clients. "Last week's releases reflected moderation, pointing to a significant downward revision to last quarter's GDP growth, and soft factory production, moderating retail spending and further homebuilding declines in January."

The probability of recession has increased, others note. "Bernanke may have to go and revise some of the sections from his semi-annual Congressional testimony-- just 48 hours after delivering his sermon," says David Rosenberg, North American economist at Merrill Lynch, in a client dispatch.

In economic news Friday, the U.S. producer price index slid 0.6% in January, while the core rate rose 0.2%, in line with expectations. This is "good news for the Fed," says Action Economics.

U.S. housing starts tumbled 14.3% to a 1.408 million pace in January, its lowest point since 1997, following December's revised 5% gain to 1.643 million.

The University of Michigan's index of U.S. consumer sentiment fell to 93.3 in the preliminary February report, weaker than expected, from 96.9 in January.

The flow of data releases slows down a bit next week. Consumer inflation and the minutes for the Jan. 30 and Jan. 31 Fed policy meeting highlight the calendar.

Among Friday's stocks in the news, Microsoft was lower after CEO Steve Ballmer said Thursday afternoon that some analyst forecasts for sales of the software giant's new Windows Vista programs are too high.

On the upside, American Airlines parent AMR (AMR) was higher on news Goldman Sachs and British Airways are among a group of investors that may make a takeover bid of $46 to $52 a share, or $9.8 billion to $11.1 billion (see BusinessWeek, 2/26/07, "Will They Buy American?").

M&A news also boosted Compass Bankshares (CBSS). Shares of the bank operator gained after Spain's Banco Bilbao agreed to buy the company for $9.6 billion.

Elsewhere, Apple (AAPL) was modestly lower after Cisco (CSCO) agreed to give the iPod maker until Feb. 21 to respond to the networking equipment maker's lawsuit over the iPhone trademark. Separately, federal prosecutors were reportedly considering criminal charges against former executives of Apple, Broadcom (BRCM), and KLA-Tencor (KLAC) over their stock-options arrangements.

In analyst calls, Colgate-Palmolive (CL) was higher after Bank of America raised its recommendation on the stock from neutral to buy.

Coca-Cola (KO) edged up and PepsiCo (PEP) was higher after Goldman Sachs lifted its rating on the two rival beverage makers from neutral to buy.

Earnings season continued to wind down. Goodyear Tire & Rubber (GT) was lower after the tire maker reported a wider fourth-quarter loss.

Onyx Pharmaceuticals (ONXX) was sharply higher after the company posted a narrower fourth-quarter loss than analysts had expected.

Shares of Campbell Soup (CPB) rose on a sharp increase in earnings for its fiscal second quarter.

In the energy markets, April West Texas Intermediate crude oil futures rose $1.40 to $59.39 a barrel amid government warnings of Nigerian militant attacks.

European markets finished modestly lower. The FTSE-100 index in London fell 14.3 points, or 0.22%, to 6,419. Germany's DAX index slipped 9.79 points, or 0.14%, to 6,948.83. In Paris, the CAC 40 index edged down 4.1 points, or 0.07%, to 5,716.78.

Asian markets ended mixed. In Japan, the Nikkei 225 index slipped 21.58 points, or 0.12%, to 17,875.65. In Hong Kong, the Hang Seng index gained 29.49 points, or 0.14%, to 20,567.91. Korea's Kospi index advanced 5.18 points, or 0.36%, to 1,448.81.

Treasury Market

Treasury yields eased, but finished off session lows, following the soft readings on wholesale inflation, housing starts, and consumer sentiment. The 10-year note rose in price to 99-16/32 for a yield of 4.69%. The 30-year bond advanced to 99-13/32 for a yield of 4.79%.