updated 9/11/2006 7:06:29 AM ET 2006-09-11T11:06:29

Wall Street rebounded moderately Friday from two losing sessions as oil prices dropped further and investors mostly shrugged off another warning from a homebuilder about declining demand. The major indexes ended the week with losses.

Major Market Indices

Investors apparently took in stride Lennar Corp.’s announcement that it was lowering its third-quarter profit forecast, joining several rivals in pointing to lackluster demand in a slowing housing market. Warnings earlier in the week from companies such as Beazer Homes USA Inc. and Hovnanian Enterprises Inc. left Wall Street unnerved at the prospect of a sharp economic slowdown.

“It’s the third warning in three days from the homebuilding industry and it’s a sign that the damage on the rest of the economy is all still in front of us,” said Stuart Schweitzer, global markets strategist at JPMorgan Asset and Wealth Management.

While Schweitzer sees risks from the slowdown, he also predicts a cooling economy could lead to a rate cut in the first half of next year.

“I think the market is in a tug of war between the potential benefits and problems from a slowdown in the economy.”

The Dow Jones industrial average rose 60.67, or 0.54 percent, to 11,392.11.

Broader stock indicators extended their gains. The Standard & Poor’s 500 index was up 4.90, or 0.38 percent, at 1,298.92, and the Nasdaq composite index rose 10.50, or 0.49 percent, at 2,165.79.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.78 percent from 4.79 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

The major indexes ended the erratic, holiday-shortened with losses amid a dismal scenario of an economic slowdown accompanied by higher inflation; investors’ disgruntlement with the homebuilders’ warnings was compounded by government data showing a jump in wage inflation during the second quarter.

But Friday, Wall Street, which has been hoping the Federal Reserve will temper its efforts to hold back inflation should the economy show further signs of slowing, appeared to regard comments from Cleveland Federal Reserve President Sandra Pianalto as acceptable.

She was quoted by news services Friday as saying it was crucial that the Fed “anchor inflation expectations in order to best promote sustainable economic growth.”

Pianalto’s speech followed remarks from San Francisco Fed President Janet Yellen on Thursday that some on Wall Street saw as indicating further interest rate hikes were likely.

Many investors are wary of more rate hikes, contending the Fed’s previous string of 17 straight increases have already slowed the economy too quickly. The Fed, which left rates unchanged at its last meeting, plans to meet again Sept. 20.

Falling oil prices also buoyed stocks Friday. Oil, which had recently been above $70 a barrel, has fallen in recent days as inventory figures showed increases and as tensions with Iran over its nuclear ambitions eased. The end of the summer driving period, coupled with a lighter-than-expected hurricane season have also helped lower prices. Light, sweet crude was down $1.07 cents at $66.25 a barrel.

Lennar fell 54 cents, or 1.2 percent, to $42.71 after saying it expects to earn $1.25 to $1.35 per share for the third quarter, well below the $2.06 per share the company earned in the same quarter last year. Wall Street had been expecting $1.81 per share. Beazer declined 9 cents to $37.24, while Hovnanian shed 92 cents, or 3.4 percent, to $26.17.

AirTran Holdings Inc., which operates low-fare carrier AirTran Airways Inc., dropped $1.19, or 11 percent, to $9.48 after the airline cut its third-quarter revenue forecast amid falling demand.

Equifax Inc. picked up $3.92, or 12 percent, to $36.34 after the credit-reporting and marketing company said its full-year earnings would exceed $2 per share; it had forecast a profit of $1.90 to $1.99 per share.

Advancing issues outnumbered decliners about 3 to 1 on the New York Stock Exchange, where volume came to 1.48 billion shares, compared with 1.45 billion traded at the same point Thursday.

The Russell 2000 index of smaller companies rose 2.07, or 0.29 percent, to 708.54.

Overseas, Japan’s Nikkei stock average closed up 0.42 percent. Britain’s FTSE 100 was up 0.36 percent, Germany’s DAX index was up 0.37 percent, and France’s CAC-40 closed up 0.27 percent.

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