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Stocks ended a choppy session lower Friday - at the end of a turbulent week - as ongoing recession fears vied with Google's earnings and bullish comments from Warren Buffett.
Treasury prices advanced, lowering the corresponding yields, and the dollar gained versus other major currencies. The credit market showed some signs of loosening, as several key lending rates declined.
The Dow Jones industrial average (INDU) fell 127 points, or 1.4%. The Dow fell as much as 261 points in the morning and rose as much as 301 points in the afternoon.
The Standard & Poor's 500 (SPX) index lost 0.6% and the Nasdaq composite (COMP) lost 0.4%.
Stocks seesawed Friday as a report showing housing starts fell to a 17-year low was countered by Google's earnings and bullish comments from influential investor Warren Buffett.
Markets were also impacted by the monthly options expiration, which can cause increased volatility in the underlying equities.
Despite the extremely volatile week, stocks managed to end with gains for the five-session period, which included the Dow's biggest one-day point gain ever on Monday and the second-biggest point loss ever on Wednesday. For the week, the Dow and S&P 500 both added 4.7% and the Nasdaq added 3.6%.
The advance this week added $500 billion in market value, according to gains in the Dow Jones Wilshire 5000, the broadest measure of the stock market.
Overall, the tone of the market seems to be better this week, compared to last week, with perhaps the exception of Wednesday's big slump, said Ron Kiddoo, chief investment officer at Cozad Asset Management.
"I think we've been helped by the government not coming out with a new program every day and by people starting to accept that the credit market will improve over time," Kiddoo said.
However, the volatility isn't likely to disappear anytime soon, he said.
Looking for a bottom: Friday's session caps off an especially volatile week on Wall Street, which started with the Dow's 936-point rally on Monday - its best day ever on a point basis and best on a percentage basis since 1933. That rally was in anticipation of Tuesday's announcement that the government will inject $250 billion directly into banks.
But the announcement sparked a sell-the-news response, with equities slipping modestly Tuesday. On Wednesday, recession talk sent the Dow down 733 points. On Thursday, the Dow rallied 401 points late in the session after slumping in the morning. And Friday's market saw a 127-point Dow loss.
Although stomach churning for investors, this week was at least better than last week - Wall Street's worst ever - as the Dow capped an eight-session selloff that cut 2,400 points and 22% off the blue-chip indicator.
On the upside, many market pros are cautiously optimistic that last week's lows for the three major gauges represent a bottom for the current bear market. In this week's tilt-a-whirl, the major gauges got close to those lows, but managed to bounce back - another indication that a bottom may have been set.
"There's no doubt the selling activity was a bottom, the question going forward is whether it was the bottom," said Jim Dunigan, chief investment officer at PNC Wealth Management.
Home construction tumbles: Housing starts fell to a 17-year low in September, according to a government report released Friday before the market opened. Starts fell to a seasonally adjusted 817,000 in the month from 872,000 the previous month. Economists were expecting a smaller decline.
Applications for building permits, considered a good indicator of future activity, fell to a seasonally adjusted rate of 786,000 in September, down from a revised 857,000 in August. Economists were expecting a smaller decline. (Full story)
Another economic report, the University of Michigan's consumer sentiment index, fell to 57.5 in October from 70.3 at the end of September, the biggest month-over-month slide in the history of the report. Economists surveyed by Briefing.com thought it would slide to 65.
Company news: Google (GOOG, Fortune 500) reported higher-than-expected third-quarter earnings Thursday night, on revenue that was in line with forecasts. The search engine's shares rose 5.5% Friday. (Full story)
Also late Thursday, Advanced Micro Devices (AMD, Fortune 500) reported a narrower quarterly loss, while IBM (IBM, Fortune 500) reported higher profit that beat estimates, after pre-announcing the results last week. AMD shares rose 2% while IBM shares ended a bit lower.
In financial services news, AIG (AIG, Fortune 500) said late Thursday that it has tapped another $12 billion in emergency government funding, bringing its total to $82.9 billion as it struggles to stay afloat. AIG fell 13.6%. (Full story)
Other financial sector decliners included Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wachovia (WB, Fortune 500) and Wells Fargo (WFC, Fortune 500).
Dow stock Merck (MRK, Fortune 500) rose after UBS upgraded it to "neutral" from "buy," Briefing.com reported.
Market breadth was mixed. On the New York Stock Exchange, winners beat losers by nine to seven as 1.74 billion shares changed hands. On the Nasdaq, decliners topped advancers four to three on volume of 2.77 billion shares.
Bush and Buffett: President Bush, speaking early Friday, reiterated the steps that the government has taken to try to stabilize roiling financial markets. (Full story)
While investors have welcomed many of the steps to get money flowing again, stocks have remained volatile and mostly negative. Year-to-date, the Dow, S&P and Nasdaq are all down at least 30%.
On Friday, Berkshire Hathaway (BRK.A) head honcho Warren Buffett said in a New York Times commentary that he is moving to stocks from Treasurys in his personal portfolio.
The influential investor said business activity will continue to dwindle as the economy struggles. But the fear surrounding the economic slowdown and the credit crisis has left stocks with attractive valuations. (Full story)
Credit market: Lending rates have improved this week, as the government initiatives have started to have an impact. (Full story)
Libor, the overnight bank-to-bank lending rate, fell to 1.67% from 1.94% late Thursday, according to Bloomberg.com, a more than four-year low. But longer-term rates have fallen more slowly. The three-month Libor, what banks charge each other to borrow for three months, fell to 4.42% from 4.50% Thursday.
Another indicator, the Libor-OIS spread, a measure of cash scarcity, fell to 3.31% from 3.39% Thursday.
The TED spread, which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays, narrowed to 3.63% from 4.11% late Thursday. The spread hit a record 4.65% last week. The wider the spread, the more reluctant banks are to lend to each other.
Credit froze up in the wake of the housing market collapse, the subsequent subprime lending fallout and contraction in the bank sector. The lack of available credit has punished the already weak economy, making it difficult for businesses to function on a daily basis and for consumers to get loans.
The Federal Reserve has made potentially trillions of dollars available to banks. Earlier this week, the U.S. government said it would invest at least $250 billion in the nation's banks as part of the $750 billion bank bailout plan.
Treasury prices rose, lowering the yield on the 10-year note at 3.97%. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, rose 0.80% from 0.48% late Tuesday, suggesting investors are still willing to take a meager return on their money rather than risk the stock market.
However, it was an improvement from last month, when the yield on the 3-month bill skidded to a 68-year low around 0%.
Other markets: U.S. light crude oil for November delivery rose $2 to settle at $71.85 a barrel on the New York Mercantile Exchange after ending the previous session at a 13-month low.
Bets that demand is slowing have sent oil prices lower since crude hit an all-time high of $147.27 a barrel on July 11. So far, instead of providing relief to investors, the decline has been seen as another indication of the global economic slowdown.
Gasoline prices fell another 4.4 cents overnight, to a national average of $3.04 a gallon, according to a survey of credit card activity by motorist group AAA. It was the 30th consecutive day that prices have decreased - in the past month alone, they're down more than 81 cents a gallon.
COMEX gold for December delivery slumped $16.80 to settle at $787.70 an ounce. A variety of other metals declined as well.
In currency trading, the dollar rose against the euro and the yen.
