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Stocks pull out of slump but end week lower

A battered stock market recovered from a sharp drop in late trading Friday but still posted its fourth straight weekly drop.
/ Source: The Associated Press

A battered stock market recovered from a sharp drop in late trading Friday but still posted its fourth straight weekly drop.

The Dow Jones industrials, down nearly 170 points in afternoon trading, clawed their way back to finish with a gain of 10. But more stocks fell than rose on the New York Stock Exchange as investors contended with another series of troubling signals about the global economy.

Investors are concerned that European governments will have trouble getting their massive deficits under control. The Labor Department, meanwhile, offered only scant hope of improvement in the jobs market in its closely watched monthly report.

"Clearly we've entered the worry, fear camp," said Rob Lutts, president and chief investment office at Cabot Money Management. "It's a very fragile investor psychology today. It doesn't take much ... to send them running for the hills."

The late-day comeback appeared to be partly due to the Federal Reserve's announcement that consumers borrowed less for an 11th straight month in December. It also said total borrowing fell far less than expected. The drop of $1.8 billion was less than the decline of $9 billion analysts forecast. That fueled hopes that consumer spending will increase.

But for the second straight day, there was unsettling economic news. On Thursday, the Dow fell 268 on growing worries about the global economy.

The U.S. unemployment rate unexpectedly fell in January to 9.7 percent from 10 percent, the government reported. At the same time, however, employers cut 20,000 jobs, more than the 5,000 economists predicted, according to Thomson Reuters. The two numbers are calculated from different surveys.

Timothy Speiss, head of Eisner LLP's Personal Wealth Advisors group, said the improving unemployment rate was a good sign, but that investors are well aware that the problems in the economy that have stocks falling in recent weeks are still there.

The jobs report came as more troubling news emerged in Europe that Portugal and other weak economies were falling behind in efforts to control their deficits.

Portugal's opposition parties defeated a government austerity plan Friday and passed their own bill allowing the country's autonomous regions to rack up more debt. That raised new questions about European countries' ability to control their swollen budget deficits, which are undermining faith in the region's euro currency. Greece and Spain are also grappling with massive deficits. Concerns about debt could make it harder for countries to maintain spending that would revive their economies.

"People were so relieved that things got better but now I think people are starting to think about the hospital bill," said Karl Mills, chief investment officer at Jurika, Mills & Keifer LLC in Oakland, Calif., referring to the debt loads.

The concerns about European nations are adding to a pile of worries that also include China's efforts to keep its growth in check and plans in Washington to restrict big banks.

The Dow rose 10.05, or 0.1 percent, to 10,012.23 after being down as much as 167 points.

For the week, the Dow lost 0.5 percent. The index hadn't fallen for four straight weeks since July.

The Dow is down 713 points, or 6.7 percent, since closing at a 15-month high of 10,725.43 on Jan. 19.

The broader Standard & Poor's 500 index rose 3.08, or 0.3 percent, to 1,066.19 and ended down 0.7 percent for the week. The S&P 500 index hasn't fallen four straight weeks since March 2009.

The Nasdaq composite index rose 15.69, or 0.7 percent, to 2,141.12. It lost 0.3 percent for the week.

About three stocks fell for every two that rose on the NYSE, where volume came to 1.6 billion shares compared with 1.5 billion Thursday.

The late-day turnaround may have been the result of a defensive move by short sellers, or investors who bet that a stock will fall in value, said Christian Bendixen, director of technical research at Bay Crest Partners in New York.

When stocks turn higher, short sellers can be pressured to quickly unwind their positions to limit future losses. To do that, they have to buy shares, which can push the stock price up even more in what's known as a "short squeeze."

"I think there was a little bit of a short squeeze," Bendixen said. "People started getting nervous that the selloff was too quick. They went from extremely bullish to extremely bearish."

Still, Bendixen said many investors dumped risky assets heading into the weekend amid worries about the global economy, including growing fears of a debt crisis in Europe.

"It almost feels a little bit like 2008 when no one wanted to hold risk over the weekend because you didn't know what news would come out on Monday," he said.

The Labor Department revised some of its past statistics lower, but analysts said there were some encouraging signs. The number of average hours worked and hourly pay both improved, as did the number of employers adding temporary workers. The hiring of temporary employees usually precedes companies adding permanent jobs during a recovery.

"Jobs may not be a plus yet," said John Merrill, chief investment officer at Tanglewood Wealth Management. But, he added: "the trend is unmistakable. It's clearly positive."

Demand for safer investments rose. The dollar climbed, while Treasury bond prices inched higher. The yield on the benchmark 10-year Treasury note, which moves opposite to its price, fell to 3.57 percent from 3.61 percent.

Gold fell. Oil dropped $1.95 to settle at $71.19 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies rose 3.30, or 0.6 percent, to 592.98.

Overseas markets fell following the global rout the day before. Britain's FTSE 100 fell 1.5 percent, Germany's DAX index dropped 1.5 percent, and France's CAC-40 tumbled 3.4 percent. Japan's Nikkei stock average fell 2.9 percent.