updated 4/3/2006 9:06:33 AM ET 2006-04-03T13:06:33

Stocks closed out a solid first quarter with a modest decline Friday despite lower oil prices and a round of temperate economic data that mitigated concerns about inflation and higher interest rates. The major indexes finished mixed for the week, but were higher for the month and the quarter.

Major Market Indices

The market opened higher on a Commerce Department report that growth in personal spending and income tapered sharply last month, with a slim rise in factory orders also helping soothe investors’ worries about greater demand driving up prices.

But stocks tailed off shortly after midday as Wall Street continued its obsession with assessing the Federal Reserve’s opinion of the economy. The last two months of data — including an upward revision to fourth-quarter gross domestic product on Thursday — have shown that inflation measures have been mostly in line with or above targets, said Ed Keon, Prudential Equity’s chief investment strategist.

“I think inflationary pressures are growing a little bit,” Keon said. “In the long run, the Fed will be able to deal with those pressures. We may see a little longer period of uncertainty as we deal with that.”

Crude futures pulled back as investors took profits following several days of sharp gains on concerns about political instability overseas. A barrel of light crude fell 52 cents to settle at $66.63 on the New York Mercantile Exchange.

The Dow Jones industrial average dropped 41.38, or 0.37 percent, to 11,109.32. The Dow lost 170 points this week.

Broader stock indicators were also lower. The Standard & Poor’s 500 index fell 5.42, or 0.42 percent, to 1,294.83; the Nasdaq composite index dropped 1.03, or 0.04 percent, to 2,339.79, after reaching a five-year high the day before.

Bonds stayed flat after two days of declines, with the yield on the 10-year Treasury note unchanged at 4.86 percent from late Thursday. The dollar was lower against other major currencies, and gold prices dropped.

Last month’s personal spending growth slowed to 0.1 percent from 0.8 percent in January, but topped economists’ forecast for no change, as monthly income grew at 0.3 percent from a prior level of 0.7 percent and missed estimates of 0.4 percent, the Commerce Department said. Those levels left the nation’s savings rate down 0.5 percent for the second straight month.

The department also said factory orders rose 0.2 percent in February following a 3.9 percent drop in the prior month. Economists, however, expected a 1.3 percent increase; the slower growth in orders may have also eased inflation fears.

Investors weighed upbeat consumer data against the drop in spending after the University of Michigan said its consumer sentiment index for March jumped 2.2 points to 88.9, topping predictions of an 86.9 reading.

Despite suffering sharp losses this week, the major indexes ended with modest gains for the month of March, giving them their best first-quarter performances in several years. For the week, the Dow lost 1.51 percent and the S&P 500 dropped 0.62 percent, while the Nasdaq surged 1.17 percent.

But in March, the Dow rose 1.05 percent, the S&P 500 added 1.11 percent and the Nasdaq climbed 2.56 percent. For the quarter, the Dow gained 3.66 percent, the S&P 500 rose 3.73 percent and the Nasdaq is 6.1 percent higher.

Although investors showed a mild response to Friday’s numbers, next week’s data on vehicle sales and employment should give the market reason to head higher or lower, said Rick Pendergraft, an equity trader at Schaeffer’s Investment Research.

“I wouldn’t be surprised if we meander until the jobs number” is released next Friday, Pendergraft said.

Delphi Corp. said it will ask a bankruptcy judge to void its union contracts , sending jitters through the auto industry about the prospect of a strike at the parts maker. A walkout would be devastating for former parent General Motors Corp., which relies heavily on Delphi parts. GM nonetheless rose 21 cents to $21.27.

Embattled mortgage lender Freddie Mac on Friday said its 2005 results were strong and that it expects to file its annual report in late May. The firm is recovering from an accounting scandal in 2003, when it revealed about $5 billion in underreported earnings. Freddie Mac lost $1.45 to $61.

Toy maker Mattel Inc. said a federal judge dismissed a patent lawsuit filed by LeapFrog Enterprises Inc. over the company’s Fisher-Price PowerTouch toy. Mattel added 23 cents to $18.13, and LeapFrog fell 14 cents at $10.62.

Declining issues were about even with advancers on the New York Stock Exchange, where volume of 1.62 billion shares matched the 1.62 billion shares that changed hands on Thursday.

The Russell 2000 index of smaller companies rose 1.04, or 0.14 percent, to 763.63.

Overseas, Japan’s Nikkei stock average rose 0.08 percent. Britain’s FTSE 100 lost 0.84 percent, Germany’s DAX index fell 0.24 percent and France’s CAC-40 was lower by 0.37 percent.

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