Stocks waffled Friday amid more turmoil for bond insurers and a statement from a Federal Reserve official that a recession may be unavoidable.
The Dow Jones Industrial Average and S&P 500 index hugged the flat line. The Nasdaq got a boost from an Amazon stock-and-debt buyback announcement.
The Dow's top decliners included American Express and J.P. Morgan , perhaps due to profit-taking after financials enjoyed strong gains on Thursday. McDonald's was the Dow's biggest gainer; other top advancers include Microsoft and Hewlett-Packard , which have taken a beating in recent sessions.
Shares of MBIA skidded after the world's largest bond insurer sold shares at a 14 percent discount to its closing price to raise capital. Shares slid 13 percent before the bell.
MBIA's woes were compounded from news that bond insurer XL Capital Assurance, a unit of Security Capital Assurance, had its "AAA" ratings cut by Moody's Investors Services.
In politics, Congress passed a $152 billion fiscal stimulus package to fend off an election-year recession by sending government rebate checks to millions of Americans and providing business tax incentives to boost spending. President Bush said he will sign the package into law next week.
But warning bells regarding the U.S. economy continued to ring.
San Francisco Federal Reserve Bank President Janet Yellen, the third Fed official to raise concerns this week, said the central bank is willing to cut U.S. interest rates further but added that she was "not confident" a recession can be avoided this year.
And the news wasn't much better on the consumer front as luxury jeweler Tiffany and fast-food chain McDonald's reported some good news, but with a catch: It was all due to strength overseas. It's not a good sign when high-end U.S. consumers are cutting back spending, and even fast-food sales are soggy.
Tiffany said Friday that it's planning its U.S. business carefully for the first half of 2008 after same-store sales dropped 2% in the U.S. during the crucial November-December holiday period. However, the retailer expects strong international sales to boost earnings. The company set its full-year earnings range between $2.50 to $2.55 a share, well above the $2.28 analysts expect, according to Thomson Financial.
Retailers on both the high and low ends turned in dismal January sales numbers on Thursday.
Wholesale inventories jumped a larger-than-expected 1.1 percent in December while wholesale sales of durable goods posted the biggest drop in more than six years, the Commerce Department reported Friday. The inventory-to-sales ratio, which measures how long it would take to work through inventories, ticked up to 1.09 months from a record low of 1.07 months in November.
"If the U.S. consumer is so sated with debt that he or she is unwilling to take on more debt, then the U.S. economy is in trouble," Jeffery Saut, chief investment strategist at Raymond James, told "Worldwide Exchange."
"I don't think you'll get clarity into the U.S. consumer for a few months," Saut added.
McDonald's, the Dow's top gainer, reported that same-store sales rose 5.7 percent in January as overseas sales got a boost from the weak dollar. U.S. same-store sales, however, rose just 1.9 percent.
Amazon helped the Nasdaq buck the downward trend Friday after the Internet retailer's board authorized the repurchase of up to $1 billion of the company's common stock over the next two years and some of the company's debt.
Alcatel's Big Loss
In earnings news, Alcatel-Lucent reported an annual loss of 443 million euros ($647.8 million), beating the average forecast of 789 million euros, according to analysts polled by Reuters. The French-American telecom-equipment maker said it expects to incur an adjusted operating loss in the first quarter of 2008 due to "seasonal patterns." Shares climbed more than 3% in Paris despite the company's announcement that it would scrap its dividend.
Mortgage financier Fannie Mae is expected to post a significant loss of $1.34 per share.
In other corporate news, Chrysler plans to cut its product line by half and also sharply reduce the numbers of dealerships as part of its strategy to cut costs and boost profitability, CNBC has learned.