Stocks dip on economic data

Stocks dip on economic data

	Published : Fri, 28 Sep 2007 20:22 By : Agencies Print this Story

NEW YORK (AP) - Stocks dipped a bit Friday, the last trading day of the third quarter, with Wall Street relieved about solid readings on the economy but cautious ahead of October's corporate earnings reports.

The market's losses were small, thanks in part to positive reports on consumer spending, construction spending, inflation and Midwest manufacturing. Though strong economic data might lower the chance that the Federal Reserve will further reduce rates, the tame inflation measure kept hopes of a rate cut alive.

Last week the Fed, reacting to August's tightening credit and plunging stocks, helped restore confidence in the financial markets by decreasing the federal funds rate target by a half point.

'A second Fed cut will go a long way in reassuring the stock market that the worst is over. The focus going forward will be whether the Fed is going to lower rates to shore this up, or decide the risk of inflation is too high,' said Janna Sampson, director of portfolio management at Oakbrook Investments.

Though energy and food prices are surging, core inflation has been within the Fed's comfort zone of 1 percent to 2 percent. The Commerce Department's consumer spending report showed that a key core inflation gauge logged a year-over-year rise in August of 1.8 percent -- the smallest increase since a similar rise in February 2004.

But continuing to weigh on investors is the concern that corporate profits dropped off in the third quarter. Friday is the last trading day of one of the most volatile periods in years, one that pulled stocks sharply lower after the Dow Jones industrial average closed at a record 14,000.41 in mid-July. Wall Street now is bracing for signs, ahead of the mid-October onslaught of earnings reports, of how companies fared during the summer's tumult.

The Dow slipped 14.31, or 0.10 percent, to 13,898.63.

Broader indexes also declined. The Standard & Poor's 500 index fell 4.31, or 0.28 percent, to 1,527.07, and the Nasdaq composite index fell 6.30, or 0.23 percent, to 2,703.29.

The Russell 2000 index of smaller companies fell 4.34, or 0.53 percent, to 809.67.

Trading volumes were low. Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where volume came to 755.9 million shares.

Bonds rose, pushing the yield on the 10-year Treasury note down to 4.56 percent from 4.57 percent late Thursday.

The dollar fell against most major currencies as inflation appeared to be easing. The euro surpassed $1.42 for the first time, hitting a record against the U.S. currency for the seventh straight session.

The dollar's weakness has lifted commodity prices throughout the quarter, but on Friday crude oil prices fell $1.34 to $81.54 a barrel on the New York Mercantile Exchange.

'We are going to see crimped corporate profits if they eat those (commodity) costs, and inflation if they pass those down. Neither of those are good,' Sampson said.

So far, consumers and businesses seem to be holding up despite high energy prices, the weak housing market and the summer's market volatility. The Commerce Department said Friday that consumer spending increased 0.6 percent in August, the fastest growth in more than two years, and that construction spending rose, to analysts' surprise, by 0.2 percent during the month.

Meanwhile, Chicago's National Association of Purchasing Management said business activity in the Chicago area increased in September by more than analysts expected, and the University of Michigan said consumer sentiment during the month held steady.

As the turbulent third quarter draws to a close, investors appear a bit less concerned about the tightening in the credit markets that sent stocks plummeting in late July and August. On Thursday, the Fed said banks slowed their borrowing from central bank this week to the smallest amount in six weeks, after a huge spike last week.

But while most agree conditions have improved, the credit markets still don't appear they are back to operating normally. Levels of outstanding asset-backed commercial paper fell about 17 percent in the week ending Wednesday -- not as steep a decline as seen a few weeks ago, but still suggesting that demand isn't meeting supply.

'We have tentative signs that the financial markets are beginning to recover from the recent upset, but financial fragility is obviously still an issue,' said St. Louis Fed President William Poole in prepared remarks in New York on Friday.

In European markets, Britain's FTSE 100 fell 0.30 percent, Germany's DAX index rose 0.10 percent, and France's CAC-40 fell 0.31 percent.

In Asia earlier, Japan's Nikkei index fell 0.28 percent and Hong Kong's Hang Seng Index rose 0.29 percent.