Stocks End Down Slightly Despite Solid Consumer Data

Stocks ended Friday down slightly as dollar weakness sparked inflation concerns but losses were limited by solid U.S. consumer data.

"Housing is slowing down but the U.S. consumer isn't," said Robert Froehlich of DWS Scudder. "The numbers today show that this dichotomy is in place and housing is in trouble but the consumers keep shopping."

The Commerce Department said this morning that August data revealed the strongest monthly consumer spending rate in four months.

The Dow Jones Industrial Average closed a relatively slow trading week with a gain of 0.5%, the S&P 500 inched up 0.1% and the Nasdaq Composite posted a weekly gain of 1.1%.

The blue chip Dow ended the third-quarter with gains of 3.6% and is now up 11.5% for the year. The S&P 500 logged a quarterly advance of 1.6%, logging year-to-date gains of 7.6%. The tech-focused Nasdaq gained 3.8% for the third quarter, rising 11.8% so far in 2007.

Traders on the floor of the New York Stock Exchange.

The markets dipped briefly in afternoon trading Friday after St. Louis Federal Reserve Bank President William Poole said the markets should not be discounting further interest rate cuts.

"It would be a mistake to bake in the cake more rate cuts," said Poole, a voting member of the Fed's policy-setting Open Market Committee. "We will go meeting by meeting."

Just three of the 10 sectors tracked by S&P ended with gains as shares of technology, financial services and health-care companies closed lower.

Among tech shares, Apple was one of the biggest drags on the Nasdaq-100, while shares of Hewlett-Packard also fell. "The backdrop of today's session is the end of the quarter," said Peter Kenny, managing director at Knight Equity Markets. "The market has been up 8 of 11 sessions, so you're seeing some profit taking from some stocks."

Analysts said inflationary pressures from higher commodity prices and the drop in the dollar to record lows could hurt the case for further cuts in interest rates by the Federal Reserve.

Among health-care stocks, shares of drug maker Merck declined, while financial stocks also recorded losses, including shares of JPMorgan Chase .

Discount retailer stocks rose, including Target and Wal-Mart Stores .

Communications equipment maker 3Com said it agreed to be taken over by China's Huawei Technologies and private equity firm Bain Capital for approximately $2.2 billion. Bain Capital is one of world's largest private equity firms while Huawei is China's largest communications equipment maker.

The takeover offer is a 44% premium to 3Com's closing price Thursday; shares jumped 34% on Friday.

Alcatel-Lucent said its board has given chief executive Patricia Russo one month to produce an emergency restructuring plan. The board met in Paris last Friday for an update on the crisis where they told Russo to present her plan at the next board meeting on Oct. 30, the paper said. Alcatel has issued three profit warnings in less than 10 months, the latest on Sept. 13.

New York light sweet crude futures eased off record highs, closing down 1.5% on profit-taking. Oil closed the third quarter with a gain of 16% and is now up 34% year to date.

Treasurys traded down slightly on Friday as dollar weakness, portfolio rebalancing and comments from Fed officials reversed an earlier rally. The benchmark 10-year Treasury fell, sending yields marginally higher. Treasury yields, which move inversely to prices, fell as low as 4.53% earlier in the session.

The dollar fell to a record low against a basket of major currencies as well as the euro after tame inflation data backed views the Federal Reserve would cut interest rates again to shore up economic growth.

Gold futures continued to soar, rising to $750 an ounce on Friday on the New York Mercantile Exchange. Gold prices are trading at their highest since January 1980 when the metal hit a record high of $850.

European stocks closed lower, while Asian stocks ended mixed.

Euro-zone inflation rebounded as expected in September, rising above the European Central Bank's target for the first time in a year, while economic sentiment plunged in the wake of global market turbulence, making the ECB's decision on rates next week even more difficult.

© 2008 CNBC.com