Stocks End Mixed

Retail sales show surprising strength in November, even as many fear a recession is around the corner

Stocks struggled for direction Thursday, with many large-cap stocks higher but the broader market negative as traders mulled over an array of data and company news.

Thursday's data included stronger-than-expected increases in wholesale prices and retail sales, confusing signs of strength for an economy that many fear is heading toward recession. A great deal of uncertainty about the future direction of the economy has caused volatile trading for several weeks.

The Dow Jones industrial average ended up 44.06 points, or 0.33%, to 13,517.96. The broader S&P 500 index was up 1.82 points, or 0.12%, to 1,488.41. The tech-heavy Nasdaq composite index dropped 2.65 points, or 0.1%, to 2,668.49.

While the blue chips recovered from earlier declines, action in the broader market remained negative, with 21 stocks dropping in price for every 11 that advanced on the New York Stock Exchange. Nasdaq breadth was 17-12 negative.

Thursday's trading session followed a wild Wednesday, when the Dow swung nearly 400 points from an early 271-point gain to a 95-point loss, then closed to end up 41.13 points, or 0.31%, higher. Traders had spent the last couple days digesting action by the Federal Reserve, both a quarter-point cut in interest rates on Tuesday and a plan to add liquidity to the world financial system on Wednesday.

Patrick Fearon, a commodities analyst for A.G. Edwards, notes a "pessimistic reassessment of the Federal Reserve's new program aimed at spurring normal interbank lending." He wrote in a Dec. 13 note that the logjam in interbank lending can be seen in the fact that the market-set London Interbank Offer Rate is now unusually high versus the Fed funds target rate. "Investors now appear to realize that an effort so focused on interbank lending may do little to stop the deterioration in the overall world economy," he wrote.

Still, an economic report released Thursday showed strength in a key U.S. sector. U.S retail sales were up 1.2% in November, and up 1.8% excluding automobiles. That's a 6.9% increase over last year. The strong numbers "have thrown a monkey wrench" into economists predictions for a consumer-led economic slowdown, Action Economics says. "Bank turmoil is apparently having little impact on consumer spending," despite some pessimism reflected in consumer confidence surveys.

Also released Thursday, the U.S. producer price index was up 3.2% in November, the biggest increase since the start of the Arab oil embargo in August 1973. The core rate, excluding volatile food and energy prices, was up 0.4%. Those numbers revived inflation fears even as many investors are far more worried about a recession.

In other economic news, U.S. initial jobless claims fell 7,000 last week to 333,000.

Friday’s consumer price index (CPI), industrial production, and capacity utilization data for November are not likely to bring much more clarity on the economy than today's data, says Standard & Poor’s MarketScope.

On Thursday, January NYMEX crude oil futures fell $2.05 to $92.34 a barrel as Lehman Brothers predicted the nation is headed for a recession, which, if it occurred, would reduce demand for oil. Some analysts said the Fed's plan unveiled Wednesday to tackle the credit crunch will not prevent an economic slowdown. A firmer dollar also helped oil prices, with the dollar value of the euro falling 0.54% to $1.4628.

For once, a big Wall Street firm was able to report a glimmer of good news Thursday. Lehman Brothers (LEH) was the first of the big Wall Street investment banks to report fourth quarter earnings, and though profits took a hit from the credit crisis, the numbers beat expectations. Lehman posted earnings of $1.54 per share, vs. $1.72 a year ago, on a 4% drop in revenue. Though its fixed income business revenue dropped 60% due to "very challenging" markets, Lehman made up for it elsewhere, especially in a doubling of equities business.

Countrywide Financial (CFC) said its mortgage loan fundings fell 40% in November, and daily mortgage applications fell 32%. However, Countrywide's loan servicing portfolio keeps growing, hitting $1.47 on Nov. 31, a 15% increase from a year ago.

Freddie Mac (FRE) and Fannie Mae (FNM) shares were helped by reports that favorable legislation was advancing in the U.S. Congress.

Amis Holdings (AMIS) agreed to be acquired by ON Semiconductor (ONNN) in a $915 million deal.

Honeywell International (HON) expects 2008 sales to be up 5% to 7% and earnings up 16% to 21%.

Pepsi Bottling Group (PBG) raised it's 2007 earnings guidance range by 2 cents.

European stocks moved lower Thursday. In London, the FTSE 100 index was off 2.98% at 6,364.2. In Paris, the CAC 40 index fell 2.65% to 5,590.91. Germany's DAX index was down 1.83% to 7,928.31.

Major Asian markets also finished lower. Japan's Nikkei 225 index slid 2.48% to 15,536.52. In Hong Kong, the Hang Seng index dropped 2.72% to 27,744.45.

Treasury market

Bond prices skidded, sending yields surging, amid controversy over the Fed’s plans to resolve the credit crunch. The 10-year note was lower at 100-20/32 for a yield of 4.178%, while the 30-year bond was lower at 106-05/32 for a yield of 4.619%.

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