Stocks End Mixed on China Tariff News

Gains from stronger than expected economic reports faded after the U.S. government said it will approve duties on Chinese paper imports

Stocks finished mixed as the volatile first quarter came to a close. The indexes got an early boost Friday from some stronger than expected economic reports, but then headed lower after the U.S. government said it would no longer exempt Chinese companies from U.S. anti-subsidy laws, and will approve duties on Chinese paper imports. Traders also kept an eye on oil prices.

The Dow Jones industrial average edged up 5.6 points, or 0.05%, to 12,354.35. The broader Standard & Poor's 500 index fell 1.67 points, or 0.12%, to 1,420.86. The tech-heavy Nasdaq composite gained 3.76 points, or 0.16%, to 2,421.64.

Next week, expect more of the same swings to kick off the second quarter. "Action is likely to remain volatile near term," says Action Economics, noting the recent surprises in several economic reports, surging oil prices, ongoing chatter on subprimes and housing, the Iranian hostage situation, and now trade sanctions on China. It will be a shorter trading week with many global markets closed or shutting early for Good Friday.

The highlight is Friday's March employment report, "with traders looking to see if some of the firmer data of late translates to a stronger jobs report that would further cast doubt on recession forecasts," says Action Economics. Other data includes the ISM manufacturing and ISM services reports, auto sales, and pending home sales. Plus, earnings season will get underway soon for stocks.

In economic news Friday, U.S. personal income rose 0.6% in February, while spending climbed 0.6%. January's 1.0% rise in income was not revised, but the 0.5% increase in spending was revised up to 0.6% (0.7% in December). Inflation gauges in the report also showed strength. The PCE deflator rose 0.4% vs. a 0.2% gain in January and accelerated to a 2.3% year-over-year pace versus 1.90% previously. The key core PCE deflator was up 0.3% on the month, after a 0.2% increase previously, leaving the year-over-year rate at 2.4% compared to 2.2% in January, and matching a four-year high.

The monthly data were double what the market was looking for and contradict beliefs the consumer was knocked out by subprime woes, says economic research outfit Action Economics.

U.S. construction spending rebounded 0.3% in February after an upwardly revised 0.5% decline in January. Residential spending remained weak, tumbling another 1.0% after a 1.8% drop in January, while nonresidential rose 1.5% after a revised 0.7% rise in January (0.2% previously).

The Chicago purchasing managers' index surged to 61.7 in March after falling to 47.9 in February -- well above expectations -- with most of the strength was in new orders.

U.S. consumer sentiment from the University of Michigan dipped to 88.4 in March on the final print, vs. 88.8 in the preliminary (91.3 February final). Though March's index is off from the better than 90+ readings through the end of 2006, it is still at an historically healthy level, says Action Economics.

Traders were watching the volatile energy market. In New York Friday, May West Texas Intermediate crude oil futures settled up 10 cents to $65.93 a barrel, after hitting $66.70 during trading. Geopolitical tensions remained at the center of the market's radar screen, though profit taking weighed through part of the session, says Action Economics. The U.S. State Dept. denied rumors that expatriates were being evacuated from Bahrain. The U.N. Security Council, expressing "grave concern," called on Iran to release the 15 British sailors and marines it has held since last Friday for allegedly straying into Iranian territorial waters. Market players are worried an escalation of this situation could disrupt oil flows from the Middle East at a time when experts warn that the U.S. needs to finds other sources of oil and substitutes.

Among stocks on the move Friday, Dell (DELL) said it found evidence of misconduct and delayed filing its annual report as it concludes an investigation into its accounting.

Red Hat (RHT) was down after the Linux software company said it expects to earn as much as 72 cents a share in fiscal 2008, above the 63 cents analysts expected.

Biotechnology outfit Dendreon (DNDN) shot up after FDA advisers recommended approving the company's prostate cancer drug Provenge as the first treatment to stimulate the body's immune system against tumor cells.

Business software concern Cognos (COGN) fell after the company forecast profit excluding some costs of 28 cents to 32 cents a share in the current quarter, less than the 36 cents analysts expected.

ICT Group (ICTG) shares skidded after the company cuts first-quarter guidance to 2-4 cents EPS on revenue of about $115 million, citing capacity-related issues with two clients. It now sees $1.00-$1.10 2007 EPS. Friedman Billings cut its estimates for the company.

European stock markets were mixed Friday. In London, the FTSE 100 index was down 16.2 points, or 0.26%, to 6,308.0. In Paris, the CAC 40 index edged down 2.63 points, or 0.05%, to 5,634.16. Germany's DAX index added 19.95 points, or 0.29%, to 6,917.03.

Major Asian markets closed mixed Friday. Japan's Nikkei 225 gained 23.71 points, or 0.14%, to 17,287.65. In Hong Kong, the Hang Seng index fell 20.85 points, or 0.11%, to 19,800.93.

Treasury Market

The bond market had a feverish day before Treasury yields ended slightly higher, with the benchmark 10-year note at 4.648%. Yields topped out near 4.67% after the U.S. imposed duties on China, which knocked the tar out of stocks and the dollar, allowing Treasuries to gain, says Action Economics. "The interesting aspect is that if the Chinese retaliate at all, they could well threaten to rotate faster out of Treasuries and into euro-denominated bonds, which could quickly kill any bond rally," says Action Economics.