updated 8/4/2008 8:16:08 AM ET 2008-08-04T12:16:08

Wall Street retreated again Friday after readings on jobs and manufacturing — the first reports for the third quarter — indicated that businesses and workers still face a tough economy. The major indexes ended a turbulent week narrowly mixed.

Major Market Indices

A massive quarterly loss at General Motors Corp. and rising oil prices also gave investors reason to trade cautiously. But the market was considerably calmer than the first four sessions of the week, when the Dow Jones industrials rose or fell by triple digits each day in response to economic data or news about the financial sector.

Friday’s reports were not as poor as many analysts had anticipated, which likely accounted for the muted reaction. Nonetheless, they portrayed an economy that was still sagging as it entered the second half of the year. The Labor Department said jobs fell for the seventh straight month in July and the unemployment rate rose to 5.7 percent. The report arrived after data Thursday that showed an unexpected jump in jobless claims to a five-year high.

“It reinforces the idea that we’re seeing a steady, but not dramatic, decline in employment, which is likely to last for some time,” said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn.

Meanwhile, the Institute for Supply Management said manufacturing activity was flat in July. Given Thursday’s disappointing report on gross domestic product growth, Wall Street is becoming more certain that the United States is in a recession — and one that could be prolonged. U.S. recessions since World War I have lasted about 10 months, on average, but have ranged from as little as six months to as long as 16 months, Sheldon said.

The flagging economy has sapped consumers’ ability to spend freely, which in turn is hurting profits at many big companies. GM said it lost $15.5 billion in the second quarter, more than analysts predicted and the automaker’s third-worst loss in its history.

There was also more bad news about construction; the Commerce Department reported that building activity declined in June. And the price of oil rose $1.02 to $125.10, retreating from an earlier gain of more than $4, but still signaling that its steep decline of recent weeks has at least temporarily been halted.

The Dow fell 51.70, or 0.45 percent, to 11,326.32. The Dow ended the week down 0.39 percent.

Broader stock indicators also lost ground Friday. The Standard & Poor’s 500 index fell 7.07, or 0.56 percent, to 1,260.31, and the Nasdaq composite index fell 14.59, or 0.63 percent, to 2,310.96.

Advancing issues, however, narrowly outnumbered decliners Friday on the New York Stock Exchange, where volume came to a light 1.22 billion shares.

The S&P finished the week up 0.21 percent, and the Nasdaq finished up 0.02 percent.

Bond prices edged higher in Friday’s trading. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.94 percent from 3.95 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

The market’s performance the past few sessions shows how jumpy investors are. The Dow zigzagged up and down by hundreds of points as the market alternately agonized over the financial sector and signs of economic weakness, and then soared as investors decided things weren’t really all that bad after all.

Some analysts believe that a stock market bottom may have been reached, even if an upswing isn’t under way. Others, however, are more cautious and wondering if more declines are to come — particularly after Merrill Lynch & Co. announced billions of dollars in extra credit-related declines this week.

However, most financial stocks performed well Friday, with investors are cautiously optimistic that banks and other financial services companies — while still losing money on their hefty investments in troubled debt — are starting to clean up their books.

Bond insurer Ambac Financial Group Inc. said it agreed to pay $850 million to settle one of its largest exposures to risky debt instruments called collateralized debt obligations. Ambac rose $1.27, or 50 percent, to $3.79, while rival MBIA Inc. rose $1.74, or 29 percent, to $7.67.

Other gainers included Dow component American International Group, up 74 cents, or 2.8 percent, at $26.79; Wachovia Corp., up $1.71, or 9.9 percent, at $18.98; and Lehman Brothers Holdings Inc., up $1.31, or 7.6 percent, at $18.65.

Shares of GM, another Dow component, gave up 84 cents, or 7.6 percent, to $10.23 after posting its quarterly loss.

Most companies’ quarterly results have been surpassing Wall Street’s forecasts. And beyond financial and consumer discretionary sectors, corporate earnings have been increasing.

“There is some room for optimism on the corporate profit front,” Sheldon said. “But a lot will depend on consumers and energy prices for the remainder of the year.”

Meanwhile, a few pharmaceutical stocks suffered sell-offs on Friday. Biogen Idec Inc. and Elan Corp. PLC fell due to safety concerns related to multiple sclerosis therapy Tysabri. Biogen dropped $19.75, or 28 percent, to $50.01, and Elan tumbled $10.12, or 50 percent, to $9.93.

The Russell 2000 index of smaller companies rose 1.62, or 0.23 percent, to 716.14.

Overseas, Japan’s Nikkei stock average fell 0.14 percent. Britain’s FTSE 100 fell 1.06 percent, Germany’s DAX index declined 1.28 percent, and France’s CAC-40 fell 1.78 percent.

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