updated 3/4/2008 7:35:25 AM ET 2008-03-04T12:35:25

Wall Street closed narrowly mixed Monday as investors wrestled with record-high commodities prices and data that pointed to a continually weakening economy.

Major Market Indices

Investors have been trying to determine whether recent pessimism about the economy has been well-founded or overwrought. The Institute for Supply Management’s index of U.S. manufacturing activity came in Monday at 48.3 — indicating a milder contraction than the 48.1 the market expected, but still, its lowest level in nearly five years.

Furthermore, the Commerce Department reported that construction spending in January fell by 1.7 percent, the steepest amount in 14 years.

“The two economic numbers that came out today were still rather on the negative side and they point to further weakness in economic activity,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.

But rising commodities prices — although they threaten to eat into consumers’ discretionary spending — encouraged Wall Street to pour money into energy, metals and mining companies. Crude oil surged to a record near $104 a barrel before settling up 61 cents at $102.45, while gold soared to a record near $1,000 an ounce. Silver, corn and soybean prices also hit all-time highs.

The Dow Jones industrial average — after slumping more than 100 points briefly during afternoon trading — finished down 7.49, or 0.06 percent, to 12,258.90.

Broader stock indicators were mixed. The Standard & Poor’s 500 index rose 0.71, or 0.05 percent, to 1,331.34, while the Nasdaq composite index fell 12.88, or 0.57 percent, to 2,258.60.

Bond prices pulled back Monday after jumping amid Friday’s stock market losses. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.55 percent from 3.53 percent late Friday.

Mining and energy companies were big winners in the stock market Monday. Coeur d’Alene Mines Corp. rose 34 cents, or 7.1 percent, to $5.16; Harmony Gold Mining Ltd. rose $1.08, or 8.9 percent, to $13.22; and Massey Energy Co. rose $3.34, or 8.7 percent, to $41.60.

Commodity prices soared as the dollar hit a fresh low against the euro.

Stifel Nicolaus market strategist Joe Battipaglia said he believes stagflation — weak growth amid accelerating inflation — is indeed occurring in the United States, despite comments last week by Federal Reserve Chairman Ben Bernanke. The Fed chief said inflation should abate as the economy slows, but Battipaglia argued that the chairman made the same pledge in 2006.

“It didn’t play well the first time, and it’s not playing well the second time,” said Battipaglia, noting that the most recent consumer price index shows an annual inflation rate above 4 percent. That’s higher than the target fed funds rate, which has been cut to 3 percent.

“The truth is, the price for everything, except for maybe soft goods and electronics, is going up,” Battipaglia said.

Monday’s volatile trading followed a sell-off Friday brought by an unwelcome mix of economic and corporate reports. The news dashed hopes from early last week that the economy would soon show signs of a recovery. The major indexes lost more than 2.5 percent Friday, with the Dow industrials falling 315 points.

Billionaire Warren Buffett said in a CNBC interview Monday the U.S. economy is essentially in a recession. Most economists define a recession as two straight quarters of negative growth in the nation’s gross domestic product.

The two weakest stocks Monday among the 30 Dow companies were Boeing Co. and Citigroup Inc.

Boeing fell after losing a $40 billion Air Force tanker contract. Boeing had been supplying refueling tankers to the Air Force for nearly 50 years. European Aeronautic Defence and Space Co., which makes Airbus planes, and Northrop Grumman, were named Friday as winners of one of the biggest Pentagon contracts in decades.

Boeing fell $2.12, or 2.56 percent, to $80.67, and Northrop Grumman jumped $3.96, or 5 percent, to $82.57.

Citigroup fell 62 cents, or 2.61 percent, to $23.09, alongside other financial stocks due to the growing fear that problems with credit will get much worse before they improve.

Jumbo mortgage lender Thornburg Mortgage Inc. said Monday it could go out of business because more financial backers are demanding additional collateral or repayment on the loans they made. The mortgage lender’s shares fell $4.58, or 51 percent, to $4.32.

“That’s just a reminder that investors are not entirely sure what they’re up against with these finance companies,” Battipaglia said.

And Security Capital Assurance Ltd. said it expects to log $1.5 billion in credit costs for the fourth quarter, heightening worries about the health of the bond insurance industry.

Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange. Consolidated volume came to 3.99 billion shares, down from 4.23 billion Friday.

The Russell 2000 index of smaller companies sank 1.96, or 0.29 percent, to 684.22.

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