Friday Dow Freezes on Investor Indecision, Now at 8,410

Only up 6 points as we near the close. Rachel

NEW YORK (AP) — After shifting from stark pessimism earlier this year to fierce optimism, investors are now seeing shades of gray.

Stocks fluctuated Friday as investors tried to reconcile mixed economic signals. They were relieved when the government trimmed its estimate for the decline in first-quarter gross domestic product. Another positive sign was a rise in May consumer sentiment.

But a group representing Chicago-area purchasing executives reported a much steeper drop in Midwest business activity than expected. Also, the dollar is falling and oil prices are rising, stoking inflation worries.

The Dow Jones industrial average rose about 0.2 percent by early afternoon trading, moving in and out of positive territory. The other major indexes made similarly modest moves.

On the last day of trading in May, the Dow is still on track for a third straight monthly gain. The index would have to drop 236 points Friday to finish the month lower.

May, however, has been the shakiest month since the market’s rally began in early March. Enthusiasm about the economy’s stabilization is turning into skepticism about how strong growth will really be once a bottom is hit.

New worries are weighing on investors: Climbing interest rates, a weaker dollar and rising commodity prices. Crude oil prices recently hit a six-month high above $66 a barrel, while the dollar on Friday sank to multi-month lows against the euro and British pound. Some analysts say these developments are simply the consequence of a recovery in the economy and the financial markets, but others warn these trends could threaten the economy’s health in the long-term.

Another more short-term obstacle is General Motors Corp.’s expected bankruptcy filing on Monday, the automaker’s restructuring deadline. The market has been factoring in the likelihood of a GM bankruptcy for months, but investors still are unsure what the fallout might be for auto suppliers and other companies.

“Technically, the market is looking quite good,” said Peter Cardillo, chief market economist at the brokerage house Avalon Partners Inc. “Although, I suspect we’ll probably stay within this trading range for another couple of weeks.”

In midafternoon trading, the Dow rose 14.66, or 0.2 percent, to 8,418.46. The Standard & Poor’s 500 index rose 2.84, or 0.3 percent, to 909.67. The Nasdaq composite index rose 1.89, or 0.1 percent, to 1,753.68.

The Dow is still up about 28 percent from the 12-year low it reached in early March, but remains down more than 40 percent from its record high in October 2007.

The Commerce Department’s report on first-quarter gross domestic product Friday showed the economy contracted at an annual rate of 5.7 percent, a bit more than analysts’ forecasts. Also, personal spending was revised lower. But the drop in GDP was smaller than the 6.1 percent estimated last month, and the report showed corporate profits rising.

The report “points to recovery,” Cardillo said. “And what you have here is a market that continues to look for recovery.”

The index from Chicago-area purchasing executives showed a bigger decrease in activity in May than in April. Analysts had anticipated a smaller contraction. The report is viewed as a precursor to the Institute for Supply Management’s national manufacturing index, due Monday.

But helping counteract that disappointing report was the University of Michigan’s index of consumer sentiment, which showed a larger-than-expected increase in May. Another report earlier in the week suggested an upswing in consumer confidence, too.

Government bonds rose, pushing down yields. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.54 percent from 3.62 percent late Thursday.

The 10-year yield hit a six-month high of 3.75 percent on Wednesday. Spiking interest rates earlier this week stoked concerns about Americans’ ability to borrow and refinance mortgages.

Oil prices have been jumping to six-month highs as the dollar tumbles. Light, sweet crude rose 91 cents to $65.97 a barrel on the New York Mercantile Exchange. Gold and silver prices rose as well.

Although rising commodity prices have fueled inflation worries, they have driven some of the best performers in the market over the past month: Metal and coal producers, miners and pipelines.

Technology stocks have also picked up in recent weeks.

The weakening dollar is also drawing more investors, like Robert Pavlik of Banyan Partners LLC, to the stocks of multinational companies. Those companies can export more and earn higher overseas revenues when the dollar is down, he said.

The worst performers in May were companies tied to the housing market and discretionary spending, such as construction companies, home improvement retailers, furniture makers and consumer electronics sellers. And financial stocks, while holding up, have not been leading the market higher as they were in March and April.

The Russell 2000 index of smaller companies rose 3.57, or 0.7 percent, to 495.78.

Advancing stocks outnumbered declining stocks by about 9 to 5 on the New York Stock Exchange, where volume was 675.6 million shares. Volumes were lighter than on Thursday.

Overseas, Japan’s Nikkei stock average rose 0.8 percent. Britain’s FTSE 100 rose 0.7 percent, Germany’s DAX index rose 0.2 percent, and France’s CAC-40 rose 0.4 percent.

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