US stocks ended a lackluster week with a moderate decline Friday as higher oil prices weighed on investors' already rickety sentiment and Treasuries rallied amid concerns about a meltdown in the subprime mortgage market among companies that offer loans to those with spotty credit.
It was the worst week for the Dow Jones industrials since mid-August. The broader market indexes were mixed for the week.
The pullback followed several mixed sessions in which the tech-dominated Nasdaq composite index showed gains but blue chip stocks pulled back in part amid inflation concerns. Oil settled at its highest level of the year Friday, eclipsing a year-high set Thursday.
Bond prices rose Friday, rebounding from a sell-off a day earlier, as investors sought quality amid concerns that subprime lenders would be forced to book big write-downs for consumers who were unable to keep up with mortgage payments. The yield on the benchmark 10-year Treasury note fell to 4.67 percent from 4.73% late Thursday.
"The defaults that you're seeing in the subprime market are a bit of a wake-up call for investors. I think you're going to see a continued flight to safety," said James Sonneborn, wealth manager at RegentAtlantic Capital LLC.
The Dow Jones industrial average fell 38.54, or 0.30%, to 12,647.48.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 5.19, or 0.36%, to 1,451.19, and the Nasdaq slipped 9.84, or 0.39%, to 2,515.10.
For the week, the Dow industrials lost 0.94%, the S&P 500 was off 0.35% and the Nasdaq composite index added 0.75%.
The dollar was mixed against other major currencies Friday, while gold prices rose.
Light, sweet crude settled up 19 cents at $61.14 on the New York Mercantile Exchange.
Investors looking for direction in the final session of a holiday-shortened week ultimately showed little reaction to comments from Federal Reserve officials. Dallas Fed President Richard Fisher said weakness in housing might be keeping inflation in check and that inflation might be showing signs of easing. His comments appeared in line with those made by Fed Chairman Ben Bernanke a week earlier.
In addition, San Francisco Fed President Janet Yellen reiterated that the Fed should remain vigilant about inflation and raise interest rates if necessary. Neither Fisher nor Yellen have a vote on the Federal Open Market Committee, which sets short-term interest rates.
The remarks follow a reading on consumer prices earlier in the week that showed inflation was higher than expected. And a pronounced increase in oil prices could also increase costs for businesses and consumers.
"Anytime we get a little bit of irritation thrown into the system, the market is going to pull back," said Robert Brown, chief investment officer at Genworth Financial Asset Management, referring in part to the rise in oil prices. "The stock market is very emotional at this point. It reacts to the tiniest bit of news and turns around and reverse the direction on it."
The speeches occurred as inflation concerns had infiltrated Wall Street's sentiment to a greater degree than in recent weeks. Only a week earlier, stocks showed their best performance of the year after Bernanke testified before congressional committees that inflation was likely to moderate over two years. The movement last week appeared almost as a counterpoint to that run-up.
"The market is latching onto the Fed speeches because there is nothing else to latch onto. It's groping for meaning, it's groping for data," Brown said. "The market has discounted risk to such an extreme. It has been driven by excessive liquidity and fantastic corporate profit growth, which is unsustainable."
The week started off more promising than it ended. On Tuesday, the Dow and the Wilshire 5000 set new closing highs. It was the Dow's 31st record close since the start of October and for the Wilshire, which measures 5,000 US-based companies, it marked the first record close since March 2000.
The Nasdaq managed gains each day last week but Friday. It finished at a six-year high Thursday following a strong forecast from chip maker Analog Devices Inc. and general optimism about technology stocks that ran counter to an overall deterioration in sentiment.
But concerns about inflation, rising oil prices and signs of strain among subprime lenders conspired to upend some of Wall Street's confidence by Friday.
The moves in the bond market Friday followed word that some borrowers with shaky credit were struggling to pay their loans.
Earlier in the week, NovaStar Financial Inc. warned it expects little if any taxable income in the next five years, as it faces difficulty with soured loans. The subprime lender, whose stock has fallen sharply this week, fell 86 cents, or 9.2%, to $8.48.
Delta Financial, another subprime lender, fell 48 cents, or 4.7%, to $9.75.
In other corporate news, Lowe's Cos., the nation's second-largest home improvement chain behind Home Depot Inc., rose $1.30, or 3.9%, to $34.93 after the company posted better-than-expected fiscal fourth-quarter results. Home Depot was off 22 cents at $40.96.
Rising oil prices lent a modest boost to energy stocks. Exxon Mobil Corp. rose 14 cents to $75.22, while ConocoPhillips advanced 32 cents to $67.20.
Taco Bell parent Yum Brands Inc. fell 55 cents to $60.51 after news video footage showed rats scurrying about a New York City Taco Bell.
Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where consolidated volume came to 2.59 billion shares, compared with 2.64 billion Thursday.
The Russell 2000 index of smaller companies fell 2.80, or 0.34%, to 826.64.
Japan's Nikkei stock average rose 0.44%. Britain's FTSE 100 closed up 0.32%, Germany's DAX index rose 0.27%, and France's CAC-40 was up 0.15%.
The Dow Jones industrial average ended the week down 120.09, or 0.94%, at 12,647.48. The Standard & Poor's 500 is down 4.35, or 0.30%, at 1,451.19; the Nasdaq composite is up 18.79, or 0.75%, at 2,515.10.
The Russell 2000 index closed the week up 8.49, or 1.04%, to end at 826.64.
The Dow Jones Wilshire 5000 Composite Index - a free-float weighted index that measures 5,000 US based companies - ended the week at 14,729.83, down 3.82 points from last week. A year ago the index was at 12,986.09.