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Stocks end slightly lower on disappointing data

Stocks fluctuated Friday after a mixed batch of readings on consumer spending contributed to a muddled picture of the economy.
/ Source: The Associated Press

Stocks extended their losing streak to four days Friday after a mixed batch of readings on consumers further muddled investors' sense of the economy.

The major stock indexes fluctuated throughout the day before closing slightly lower. The Dow Jones industrial average fell nearly 17 points and has now lost almost 400 over four days. It was a typically slow summer Friday, but only partly due to vacations. Traders who were working had little reason to make any major moves because of economic data that remains confusing.

One of the biggest obstacles to a strong economic recovery is weak consumer spending. Friday's reports about consumers' attitudes and spending didn't point to a shopping rebound anytime soon.

The Commerce Department said that retail sales rose 0.4 percent in July. That was an improvement after two months of sales declines. But the number was just below economists' forecast of a gain of 0.5 percent. While the report showed strength in auto sales due to buyers' incentives, it also showed that consumers are shying away from other purchases.

Some better news came from the University of Michigan/Reuters survey of consumer sentiment for the first part of August, which showed consumers are slightly more optimistic. An index based on the survey came in at 69.6, slightly above analysts' estimates and up from July's 67.8.

But retailer J.C. Penney Co. lowered its earnings forecast for the year, citing expectations that consumer spending will be slow. J.C. Penney joined competitor Kohl's Corp., which lowered its earnings outlook on Thursday.

These latest reports fell in line with a long string of conflicting data that has left investors unsure about where the economy is headed. Consumer spending has remained weak along with the labor market. And there are no signs that employers are ready to start hiring at a pace to help lift the economy. On Thursday, the Labor Department said the number of people filing for unemployment benefits for the first time rose last week.

Although J.C. Penney and Kohl's were disappointments for investors, second-quarter earnings overall have been strong and company executives are optimistic. The split between economic and earnings numbers has added to investors' murky view of the economy. It contributed to this week's heavy selling.

"We're in a fragile market," said Steven Goldman, chief market strategist, Weeden & Co. in Greenwich, Conn. He noted that the market's decline is feeding the lack of confidence among consumers and investors. That inevitably has an impact on the economy.

The Dow fell 16.80, or 0.2 percent, to 10,303.15. The Standard & Poor's 500 index fell 4.36, or 0.4 percent, to 1,079.25. The Nasdaq composite index fell 16.79, or 0.8 percent, to 2,173.48.

Losing stocks were ahead of gainers by almost 4 to 3 on the New York Stock Exchange, where consolidated volume came to an extremely light 3.35 billion shares, down from Thursday's 4 billion.

The major indexes' performance for the week shows how turbulent the market has been. The Dow is down 3.3 percent, while the S&P 500 is off 3.8 percent. The Nasdaq composite index had the steepest drop, 5 percent, in part because of a cautious economic outlook from Cisco Systems Inc.'s CEO, John Chambers. He echoed the words used last month by Federal Reserve Chairman Ben Bernanke, who called the outlook for the recovery "unusually uncertain." Cisco, which makes networking equipment, is seen as an economic bellwether.

The Fed's policy meeting on Tuesday also took a toll on stocks. The central bank noted that the recovery was slowing, and said it would start buying government debt in hopes of lowering interest rates and stimulating lending. However, investors believed the Fed's moves will have little impact on the economy.

Interest rates in the Treasury market showed investors' uneasiness. Rates, which move in the opposite direction from prices, have fallen as investors seek a safe place for their money.

The yield on the Treasury's 10-year note, which is used to set rates on consumer loans including mortgages, was 2.68 percent Friday, down from late Wednesday's 2.75 percent. A week ago, the yield stood at 2.82 percent, and on Aug. 2, the first trading day of the month, it was 2.97 percent.

Philip S. Dow, director of equity strategy at RBC Wealth Management in Minneapolis said much of Friday's trading was likely coming from high-frequency traders, who used complex mathematical models and computers to make money off small differences in stock prices. Many other investors still have a lot of cash on the sidelines while they wait to see where the market is headed, Dow said.

Stocks drew some support from the announcements of two planned corporate acquisitions. Asset manager Blackstone Group is paying $542.7 million to take power plant owner Dynegy Inc. private. The deal also calls for Blackstone to assume more than $4 billion in Dynegy's debt. Dynegy will also sell four power plants to NRG Energy Inc.

Dynegy rose $1.75, or 63 percent, to $4.53. Blackstone fell 38 cents, or 3.5 percent, to $10.63. And NRG fell 45 cents, or 2 percent, to $21.96.

IBM Corp. said it's buying Unica Corp., a marketing services company, for $480 million. IBM fell 43 cents, or 0.3 percent, to $127.87. Unica more than doubled in price, rising $11.29 to $20.84.

J.C. Penney fell 98 cents, or 4.7 percent, to $19.82. Other retailers also fell.

Overseas markets were mixed. London's FTSE-100 index rose 0.2 percent, while Germany's DAX fell 0.4 percent and the CAC-40 index in Paris fell 0.3 percent.

Investors in Europe were more concerned with signs of slowing growth in the U.S. than in their own economies. News that the European economy had grown 1 percent during the second quarter gave some support to stocks, but it was not enough to lift them across the board.

Earlier, Japan's Nikkei 225 index rose 0.4 percent.