Stocks closed mixed on the last day of the first quarter as blue chip stocks logged their worst quarterly performance in almost two years.
For the quarter, the Dow Jones Industrial Average closed down 0.9% but the S&P 500 rose 0.2% while Nasdaq gained 0.3%. It was the Dow's largest quarterly decline since the second quarter of 2005.
Despite the market's lackluster performance, many analysts remain bullish.
"What you've seen this quarter is a lot of negative shocks to the system in the market, yet the markets really don't want to go down," Erik Ristuben, director of client investment strategies at Russell Investment Group, told CNBC.
"That really points out the fact that there is a lot of fundamental value in stocks versus bonds. Corporate earnings have been spectacular for multiple of years and that really gives strong price support to the broad market," said Ristuben.
Utilities and basic materials were the top performing sectors in the first quarter, each posting gains of about 8.4%. Investors flocked to the safe-haven utility stocks amid increased volatility, while basic materials benefited from a rise in mergers activity.
Financials the Laggard
The financial sector was the quarter's clear laggard with declines of 3.4% due to concerns of a subprime mortgage meltdown and a potential spillover into the broader housing market.
For the week, the Dow lost 1%, while the S&P and Nasdaq fell about 1.1%. Telecom stocks were a bright spot in a falling market, closing the week with a gain of 0.50%,while industrial and financial shares led losers as both saw weekly declines of more than 1.9%.
On Friday, the major market indexes rebounded from session lows after crude oil's decline snapped eight straight winning sessions. Breadth was positive, with advancing shares outpacing decliners by a three to two margin. Five of 10 sectors in the S&P 500 traded higher as energy fell 1.24% while telecom rose 0.55%.
Investors also reacted to a surprise move by the U.S. government to impose trade duties on paper products from China.
"The initial reaction (to the tariffs) was to sell and the follow on reaction is to find out more," said Joseph Battipaglia, chief investment officer at Ryan Beck, in an interview with CNBC.com.
"I don't think it's fully comprehended what will come of this," he added. "If you want to show that you're tough on the Chinese, this is a haphazard way of going about it. You're really aiming the gun at yourself since the items you're importing from China will cost you more."
Paper stocks saw a surge of buying interest on the government's change in trade policy. Shares of Bowater , International Paper and MeadWestvaco closed higher on Friday.
"It's a new step for the Bush Administration ... to some extent it marks the ascendancy of China as a capitalist system but it's another step in the trade war," Avery Shenfeld, senior economist at CIBC World Markets, told CNBC.com.
In company news, Dell shares closed down after the PC giant said an internal audit uncovered accounting errors and evidence of misconduct, causing the company to delay filing its annual report with the SEC.
Shares of tiny drug developer Dendreon was easily the most actively traded stock on the Nasdaq, soaring 148% after an FDA advisory panel recommended that the agency approve the company's experimental cancer drug Provenge.
Swiss drug giant Novartis cut 2007 sales estimates after it pulled its irritable bowel treatment Zelnorm from the U.S. market at the request of the FDA, due to a possible link to increased risks of heart attack or stroke. Trading in Novartis shares was halted at midday on Friday.
Electronics manufacturing services firm Solectron gained after the company said late Thursday it expects quarterly sales to come in above analysts' expectations. The company forecast revenue between $2.9 billion and $3.1 billion. Analysts are looking for $2.87 billion in sales.
Ecuador's state-owned oil producer Petroecuador declared force majeure on exports due to a cut in production, sending down shares of Occidental Petroleum , which has a stake in a number of oil fields in the region.
New York light crude futures closed down to $65.87 a barrel on the New York Mercantile Exchange. The commodity rose 9% in the first quarter.
Volatility descended on the fixed income markets due to news of the U.S.-China trade tariffs and a big batch of mostly positive economic data. Treasuries fell, sending yields higher.
Business activity in the Midwest expanded in March at a very strong pace, according to a report released Friday. The National Association of Purchasing Management-Chicago said its business barometer jumped to a new record of 61.7, up from 47.9 in February. The consensus forecast was 49.2.
"It was above even the highest expectations," Holly Liss, vice president at Citigroup Global Markets, told CNBC.
Other data released Friday morning showed that growth in incomes and spending were stronger than expected, pointing to economic growth.
But the core personal consumption expenditure index, an inflation measure, rose slightly more than expected while consumer sentiment in March fell to its lowest in six months.
Europe, Asia Close Mixed
European shares ended mixed on Friday amid M&A speculation, while geopolitical tensions and rising oil prices affected Asian markets.
Britain's FTSE-100 ended lower, the Paris CAC-40 closed flat and Germany's DAX rose 0.30%.
U.K. drug retailer Alliance Boots received a revised buy-out proposal from Kohlberg Kravis Roberts and Stefano Pessina.
The private equity arm of Goldman Sachs is sizing up a bid this year for Kingfisher, Europe's biggest home-improvements retailer, the Times reported on Friday.
Shares of UK mobile phone operator Vodafone fell after the firm unveiled narrower-than-expected profit margins.
Tokyo's Nikkei 225 Average rose as investors bought shares of some manufacturers such as Honda Motor after data showed industrial output fell less than expected last month, and due to a decline in the yen.
In South Korea, the Kospi Index hit its highest in a month, but lost morning gains to trade flat as Samsung Electronics fell on worries about upcoming first-quarter results, while a surge in oil prices hit firms sensitive to energy costs. But the index found support as steel producer POSCO extended a record-setting rally on expectations for solid quarterly profits and increased takeover activity in the global steel sector.
Hong Kong's Hang Seng Index was lower as China Unicom and China Netcom retreated after rising sharply this week on speculation of an industry reshuffle.