Stocks Finish Mixed amid Oil Surge

A late burst of buying Friday helped the market trim earlier, steeper losses despite a jump in crude prices

Stocks closed narrowly mixed Friday as a late rebound amid an expiration of options helped the market trim earlier, steeper losses. Worries about inflation and its impact on consumer spending, stoked by a spike in oil prices and news of a drop in consumer sentiment to a 28-year low, pressured stocks much of the session, offsetting a surprise -- and welcome -- 8.2% jump in April housing starts. The options expiry kicked in during the final moments of trading.

Bonds and the dollar index fell. Gold rose as the dollar eased.

On Friday, the Dow Jones industrial average finished lower by 5.86 points, or 0.05%, at 12,986.80. The broader S&P 500 index added 1.78 points, or 0.13%, to close at 1,425.35. The tech-heavy Nasdaq composite index fell 4.88 points, or 0.19%, to end the session at 2,528.85.

Trading was moderate as traders squared positions before the weekend, reports S&P MarketScope. On the New York Stock Exchange, 16 stocks rose in price for every 15 that fell. The ratio on the Nasdaq was 16-12 negative.

Capping a busy week for economic reports, The Commerce Department said that U.S. housing starts rebounded 8.2% in April to a seasonally adjusted annual rate of of 1.03 million units -- above the median estimate -- thanks to a 40.5% surge in construction of apartment buildings. The increase in housing starts was the biggest jump in two years.

The signals are mixed for single-family homes, however, with starts down a further 1.7% in April and permits rising 4.0% (the first increase since March 2007), said John Ryding, chief U.S. economist at Bear Stearns & Co. in an email note. He advised against reading much into the rise in permits and said the decline in housing starts over the last three months shows housing will continue to be a significant drag on growth in the second quarter.

U.S. consumer sentiment dropped further to 59.5 in the preliminary Reuters/University of Michigan report for May, the weakest reading since June, 1980, from 62.6 in April. The current economic conditions index fell to 71.7 from 77.0 previously. The economic outlook index fell to 51.7 from 53.3.

The inflation indexes really took off, notes Action Economics, with the 1-year median rate rising to 5.2 from 4.8% in April (it was 3.4% in January). The 5- to 10-year index edged up to 3.3% from April's 3.2% (it was 3.0% in January).

In a speech Friday, U.S. Treasury Secretary Henry Paulson was upbeat about the credit crisis but said that housing problems are the biggest risk to the economy.

Looking ahead to next week, the Conference Board will release its April composite index of leading indicators on Monday. Other reports of interest this week will be Tuesday’s data on producer prices, which are expected to keep inflation concerns on the radars of both investors and Federal Reserve policymakers.

Inflation concerns will also be a highlight of the minutes of the Fed’s April 29-30 meeting, due on Wednesday, given the dissenting votes by two officials against the Fed’s decision to cut rates. And at the end of the week, the markets will be looking at Thursday’s index of home prices from the Office of Federal Housing Enterprise Oversight and Friday’s data on sales of existing homes for any sign housing is stabilizing.

On Friday, Yahoo (YHOO) Chairman Roy Bostock responded to activist investor Carl Icahn's proxy challenge to oust Yahoo's board with a letter saying Icahn had misunderstood the events that led to Microsoft's (MSFT) withdrawal of its takeover offer and saying Icahn should not be allowed to take control of the board.

General Electric (GE) announced that it was reviewing strategic options for its Appliances business. The company is currently considering three possibilities for the unit: a strategic partnership or joint venture; spin off; or the sale of the business.

June WTI crude oil futures, which hit a record $127.82 earlier, were up $2.27 to $126.39 in late trading.

Various reports say traders buying heating oil on speculation China will need to increase diesel purchases for its power plants that were damaged by this week's earthquake. Prices briefly faltered on a Bloomberg report Saudi Arabia will increase crude oil production by 300,000 barrels a day next month in response to customer requests. The White House said the U.S. had agreed to help protect the oil resources of the world's top oil exporter and help it in developing peaceful nuclear energy.

Meanwhile, Goldman Sachs Group raised its crude-oil price forecast for the second half of this year to $141 a barrel, from $107, citing supply constraints.

Among other stocks in the news Friday, Abercrombie & Fitch (ANF) posted a profit of 69 cents per share in the first quarter vs. 65 cents a year ago on a 3% decline in same-store sales and 8% higher total sales. Same-store sales rose 3% at Abercrombie & Fitch stores. The company reaffirmed its previously disclosed EPS guidance of $1.61-$1.65 for the first half of fiscal 2009 and said the low end of the range reflects a negative 2% same-store sales scenario for the second quarter.

Eli Lilly & Co. (LLY) said a pivotal non-small cell lung cancer (NSCLC) clinical trial shows that lung cancer patients whose histology is factored into treatment decisions may fare better as a result. The drug maker notes that data from the trial, which involved Lilly's ALIMTA (pemetrexed for injection), will be presented at am upcoming annual meeting of the American Society of Clinical Oncology (ASCO) in Chicago in late May to early June.

Major European indexes finished higher Friday, though off the best levels of the session. In London, the FTSE 100 index rose 0.84% to 6,304.30. In Paris, the CAC 40 index gained 0.41% to 5,078.04, while Germany's DAX index was up 1.07% at 7,156.55.

In Asia, Japan's Nikkei 225 ended 0.23% lower at 14,219.48, while Hong Kong's Hang Seng index rose 0.41% to 25,618.86.

Treasury market

Treasuries erased early gains to close lower in price. A surprise bounce in April housing starts offset weak May preliminary Michigan sentiment. The 10-year note fell 08/32 to 100-08/32 for a yield of 3.85%. The 30-year bond slid 13/32 to 96-25/32 for a yield of 4.57%.

The late downturn in bonds appears to represent position squaring ahead of the weekend, notes S&P MarketScope.

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