Stocks closed mostly lower after a day of choppy trading as investors worried whether Federal Reserve Chairman Ben Bernanke would signal a possible interest rate cut during a speech Friday morning.
"Volume was very light but without extreme volatility," said Scott Fullman, director of investment strategy, for IA Englander. "We stayed on the negative side for much of the session with people adjusting positions going into the weekend."
Fullman said, "the main attraction for the market tomorrow will be Bernanke, and then the focus will be on getting away for the long weekend."
The bright spot in the market was a variety of technology stocks, seen as being less exposed to debt problems, which enabled the Nasdaq Composite to chalk up a modest gain in the Thursday session.
For the week so far, the Dow Jones Industrial average is down 1%, while the Nasdaq Composite is off 0.5%. The Dow is nearlly 800 points below its all-time high it set on July 19.
The Fed chairman is expected to address housing and monetary policy at the Fed's annual retreat in Jackson Hole, Wyoming.
"Everyone is a little concerned about where we're sitting with the credit crunch, potential recession and, of course, Bernanke, who is really facing his first large financial crisis," said Greg Palmer, head of equity sales and trading at Pacific Crest Securities. "We're all wondering what he's going to do."
Wal-Mart Stores led the Dow lower after Merrill Lynch cut its shares to "sell" from "neutral," saying its operating margins are likely to compress further.
The financial sector led the way lower in the S&P 500 after Lehman Brothers cut earnings forecasts on several fellow investment banks including Bear Stearns, Goldman Sachs, Merrill Lynch and Morgan Stanley, citing tough credit and mortgage markets.
In corporate news, shares of Research in Motion rose on renewed market speculation that Microsoft could be interested in buying the BlackBerry maker.
In the latest credit crunch news, private equity firm Kohlberg Kravis Roberts is unlikely to make major compromises in talks with banks over the financing of a $24 billion deal to take over credit card processor First Data , the Wall Street Journal reported on its Web site on Thursday.
Mortgage financier Freddie Mac said its second-quarter profit dropped 45%, after it recorded larger provisions on its books for bad loans.
H&R Block said it is trying to renegotiate terms to sale its troubled mortgage lending unit as credit markets continue to deteriorate.
Sears Holdings second-quarter profit dropped 40% on lower overall sales and weaker operating results from Kmart and its domestic Sears operations.
Luxury retailer Tiffany said second-quarter profit fell 10%, hurt by a charge related to selling its Little Switzerland retail business, but sales beat expectations.
In economic news, a new government report showed economic growth held up in the second quarter despite turmoil from the housing sector. The Commerce Department said second-quarter gross domestic product rose 4%, its fastest pace in more than a year. However, the data still disappointed investors since it was a bit lower than many anticipated.
Major indexes in Europe closed higher, thanks to a U.S. rally in the previous session that pushed the Dow Jones Industrial Average up nearly 250 points. Asian markets also ended higher, with the exception of Singapore.