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Stocks Up for the Week Despite Holiday Sell-Off

Investors usually cash out ahead of a holiday weekend and, in this jittery environment, today was no exception. However, all three major indexes finished up for the week.

All U.S. financial markets will be closed Monday for Presidents' Day.

The Dow Jones Industrial Average shed just 29 points Friday. A rally in the beginning of the week offset the brutality of the Valentine's Day sell-off, pushing the Dow up 1.4 percent for the week. Though, the blue-chip average is still down 7 percent for the year.

The Nasdaq also declined, while the S&P 500 index finished flat. Both indexes finished higher for the week. Still, all three indexes have a ways to go to make up for the January rout.

The market is in the process of digesting some of this negative news and trying to find a bottom -- or, rather, confirm the lows set in January -- said Bruce McCain, head of the investment-strategy team for Key Private Bank.

"As we confirm that we're not going to new lows here, we think the market will start to focus on an economy that will be better by fall," McCain said.

Markets have been trading on a day-to-day basis and Friday's economic reports offered bleak views on everything from manufacturing to consumer sentiment.

U.S. import prices rose 1.7 percent in January, more than triple what economists had expected, amid sharp increases in prices of petroleum and food. The Empire State Manufacturing Index dropped to -11.7, the first time the gauge has fallen below zero in nearly three years. Industrial production rose 0.1 percent, as expected, in January. The University of Michigan reported that consumer sentiment fell sharply in early February to levels usually associated with recession.

The latest casualty of the consumer pullback was Best Buy , which closed down 2.5 percent after the consumer-electronics retailer warned of a profit decline in fiscal 2008 due to weak January sales. Consumers just didn't hit the stores after the holidays like they have in past years. The chain now expects earnings to be $3.05 to $3.10 a share, down from its earlier estimate of $3.10 to $3.20 a share. Stifel Nicolaus analyst David Schick downgraded the stock to "hold" from "buy," citing the spending slowdown.

Shares of rival Circuit City also declined.

Analysts have been talking about a weak first quarter for some time, but now we've got the data to prove it: Thomson Financial predicts that S&P 500 earnings will slide 0.1 percent as the forecast for financial earnings ballooned to 23 percent.

Bond insurers remained in focus after New York state Insurance Superintendent Eric Dinallo told CNBC Friday that FGIC, the third largest bond insurer, plans to split into two companies. The company recently lost its triple-A bond rating because of subprime-related losses.

The two biggest U.S. bond insurers, MBIA and Ambac Financial Group, told CNBC Thursday that they don't need a government-led bailout despite billions of dollars of losses from subprime-related debt.

UBS shares came under pressure again today after the bank said it could face an additional $18 billion in 2008 writedownsfrom bad subprime mortgages. Bear Stearns shares rose more than 5 percent amid renewed takeover chatter, this time that China's top brokerage firm want to increase its stake in Bear.

Meanwhile, Citigroup skidded after the banking giant barred investors in one of its hedge funds from withdrawing money, according to a report in the Wall Street Journal.

Whole Foods, the biggest decliner on the S&P, tumbled after Lehman Brothers downgraded its rating on the upscale-grocery chain to "underweight."

Shares of Kraft Foods advanced after Warren Buffet's Berkshire Hathaway said Thursday that it now has an 8.6 percent stake in Kraft.

Pfizer, Eli Lilly and Schering-Plough advanced after Goldman Sachs analysts raised their rating on the pharmaceutical sector to "attractive" from "neutral," based on valuation, and said these are their three favorite stocks in the sector.

Airline stocks advanced amid speculation that a Delta - Northwest merger will be announced next week. The American Express airline index jumped 2 percent. American and Continental were some of the sector's biggest gainers after a report in the Wall Street Journal that the two may be mulling a merger.

As for good plays coming off a bottom, McCain said Key Private Bank is looking at consumer discretionary, finance and transportation, specifically focusing on mid-cap growth stocks. They like Henry Schein, Thermo Fisher Scientific and Covance -- "companies that can grow on their own, even without a lot of help from the economy."

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On Tap for Next Week:
Mon: Markets closed for Presidents' Day
Tue: Earnings from Dow components H-P and Wal-Mart
Wed: CPI, Housing starts, Fed minutes
Thu: Jobless claims, J.C. Penney earnings
Wild Card: Delta-Northwest merger may be announced

Write to Cindy Perman at cindy.perman@nbcuni.com.

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