updated 2/17/2004 9:24:39 AM ET 2004-02-17T14:24:39

An all-time record U.S. trade deficit and a surprising drop in consumer confidence sparked profit-taking on Wall Street Friday, sending stock prices lower despite some bullish economic news from the U.S. Federal Reserve earlier in the week.

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The sell-off was prompted by an unexpected 10-point dive in the University of Michigan’s mid-February consumer sentiment index. Economists had forecast a slight rise.

And before the session began, the Commerce Department reported a 17.1 percent increase in the trade deficit to $489.4 billion for 2003, far outstripping the previous record of $418 billion set in 2002.

While some investors found the latest data confusing given Fed chairman Alan Greenspan’s optimistic assessment of the economy, the falling prices were also due to the normal spate of investors cashing in profits before the long holiday weekend.

“The consumer confidence and the trade figure was not good news,” said Peter Cardillo, senior vice president and chief market analyst for S.W. Bach & Co. “But this doesn’t necessarily reverse the bullish sentiment in the market.”

The Dow Jones industrial average dropped 66.22 points, or 0.6 percent, to 10,627.85, but finished the week 0.3 percent higher thanks to Wednesday’s 124-point gain. It was the Dow’s second straight winning week.

Broader stock indicators also fell Friday. The Standard & Poor’s 500-stock index was down 6.30 points, or 0.6 percent, at 1,145.81 by the close, but managed a second straight weekly advance, rising 0.3 percent. The Nasdaq composite index fell 20.05 points, or 1 percent, to 2,053.56, losing 0.5 percent and falling for a fourth straight week.

Despite the trade deficit figure, which was far worse than Wall Street expected, there was good news in the Commerce Department report. U.S. exports totaled $1 trillion, the best showing since 2000 and a 4.6 percent increase from 2002. That, combined with a generally good week of economic news, shored up prices.

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However, neither economic figure helped investor confidence, despite Greenspan’s better-than-expected forecasts. A weakening dollar and higher oil prices also contributed to the decline, and economists believe the strong earnings reported for the fourth quarter won’t be sustained through 2004.

“You’ve got a number of indicators that corporate profits are going to be weaker than expected,” said Tracy Herrick, chief economist at the Private Bank of the Peninsula in Palo Alto, Calif. “The strength of the market will have to focus more on interest rates than corporate profits, especially as we get into the second half of the year.”

Comcast Corp.’s proposed $54 billion hostile takeover of The Walt Disney Co. continued to intrigue investors as Disney promised to give the bid full due diligence. Comcast slipped 16 cents to $29.90, while Disney fell $1.08 to $26.92 after two days of strong gains. Microsoft Corp., down 36 cents at $26.59, and Time Warner Inc., down 19 cents at $17.24, have been mentioned as possible white knights for Disney.

Safeway Inc. dropped 6 cents to $22.43. The grocer, already struggling with a major labor strike in California, posted a loss of $1.57 per share, but beat analysts’ estimates for operating profits.

Pharmaceutical company Cephalon Inc.’s earnings fell sharply from the year-ago quarter, when it benefited from a large tax gain. Earnings were in line with analysts’ expectations, and Cephalon shot up $1.84 to $57.20.

Technology stocks were mixed on a pair of bellwether earnings reports. Dell Inc. jumped 98 cents to $34.55 after posting earnings that beat estimates by a penny per share and gave a stronger outlook on corporate technology spending. Video microchip maker nVidia Corp. fell 22 cents to $23.30 after it beat Wall Street expectations by 3 cents per share.

Declining issues outnumbered advancers by a 2-to-1 ratio on the New York Stock Exchange, where volume came to 1.31 billion shares, compared with 1.46 billion on Thursday.

The Russell 2000 index of smaller companies finished Friday down 7.61 points, or 1.3 percent, at 585.14.

Overseas, Japan’s Nikkei stock average rose 0.9 percent Friday. Britain’s FTSE 100 index finished 0.8 percent higher, Germany’s DAX fell 1.6 percent and France’s CAC-40 dropped 0.9 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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