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A larger-than-expected drop in housing starts gave Wall Street a narrowly mixed performance Friday, but the Dow Jones industrials had their third straight record close after spending much of the session in a decline that lacked conviction. The major indexes had their best week since mid-November.
Investors remained somewhat cautious after the US Commerce Department said construction of new homes and apartments sank 14.3 percent in January, the biggest drop in nearly 10 years. But there was upbeat economic news as well that lent support to the market and kept the pullback to a minimum - wholesale prices fell in January by the largest amount in three months amid retreating energy prices.
Technology stocks were weaker after Microsoft Chief Executive Steve Ballmer said late Thursday that Wall Street's revenue forecasts for the Vista operating system were "overly aggressive." The stock, trading just off its 52-week high, fell more than 2%.
Friday's advance gave the Dow its fourth straight gain; the index added 215.02 points since Tuesday. The market's February rally has been driven by growing confidence that interest rates will hold steady as Federal Reserve Chairman Ben Bernanke battles inflation and tries to ease the economy into a soft landing.
"The Microsoft news and the housing data spooked the market," said Jim Herrick, director of equity trading at Baird & Co. "But, this is just a mild drop, not a dramatic sell-off."
The Dow Jones Industrials' Average rose 2.56, or 0.02%, to 12,767.57. It marked the Dow's 30th record close since the start of October and the blue chips' third record close of the week.
Broader stock indicators fell. The Standard & Poor's 500 index fell 1.27, or 0.09%, to 1,455.54, and the Nasdaq composite index dropped 0.79, or 0.03%, to 2,496.31.
For the week, both the Dow and the Nasdaq rose 1.48%, while the S&P 500 added 1.22%. Stocks began their ascent Tuesday following word two companies were interested in acquiring aluminum producer Alcoa Inc. Wall Street extended its gains Wednesday after Bernanke told a Senate panel the economy should grow modestly this year and that he expects inflation will continue to ease.
The testimony appeared to signal to some investors that a reduction in interest rates might be possible this year - at the very least, it made it seem more likely the bank would keep rates stable rather than raise them to cool the economy.
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.69% from 4.71% late Thursday. The dollar was mixed against other major currencies, while gold prices rose.
The markets will be closed Monday for Presidents Day.
The Labor Department reported its measure of wholesale inflation, the producer price index, declined 0.6% in January to match Wall Street expectations. Excluding food and energy, the core PPI was also in line with projections with a 0.2% increase.
However, the markets were startled by a report from the Commerce Department that construction of new homes and apartments sank 14.3% in January.
"Weakness in housing starts will ultimately be good for housing because there is too much inventory out there. But this correction doesn't make it painless," said Stuart Schweitzer, global markets strategist for JPMorgan Private Bank.
He contends that while the slowdown in housing could lead to a rise in unemployment in the construction sector, the overall economy remains solid. A cooling housing sector and an attendant uptick in unemployment could ease concerns about inflation and help the Fed justify an eventual reduction in short-term interest rates. The central bank left rates unchanged at its last five meetings, interrupting a string of 17 straight advances that began in 2004.
"The economic outlook remains sound basically because with inflation under control, interest rates can come down if needed and put a safety net under the economy," Schweitzer said.
Homebuilders slumped on news of the weak housing starts. Lennar Corp. fell 24 cents to $52.96, while KB Home slid 53 cents to $54.22.
Microsoft fell 72 cents, or 2.4%, to $28.74 after Ballmer told Wall Street analysts they need to lower sales projections for Vista. The consumer version of Vista was released in late January, while businesses received their version in November.
DaimlerChrysler AG jumped $3.08, or 4.4%, to $73.33 after a trade publication reported that General Motors Corp. is in talks to acquire the troubled Chrysler Group. GM slipped 10 cents to $36.34. GM and Chrysler officials declined to comment on the story in Automotive News, which cited sources in Germany and the US whom it did not identify.
AMR Corp., the parent of American Airlines, rose 92 cents, or 2.4%, to $38.97 on speculation a buyout team led by Goldman Sachs Group Inc. and British Airways PLC might make a bid for the company.
Compass Bancshares Inc. surged after Spanish financial group Banco Bilbao Vizcaya Argentaria SA agreed to buy the regional bank for $9.6 billion in cash and stock. Banco Bilbao shares fell 66 cents, or 2.5%, to $25.57; Compass surged $4.33, or 6.5%, to $70.70.
Goodyear Tire & Rubber Co. fell 23 cents to $25.18 after it reported a $358 million loss, and operating earnings that missed Wall Street projections. The company blamed the miss on a costly strike at 16 plants.
Declining issues barely outpaced advancers on the New York Stock Exchange, where consolidated volume came to 2.38 billion shares compared with 2.45 billion traded Thursday.
The Russell 2000 index of smaller companies rose 2.72, or 0.33%, to 818.15, a new closing high that edged past the previous mark of 816.39, set a week earlier.
Japan's Nikkei stock average closed lower by 0.12%. Britain's FTSE 100 closed down 0.21%, Germany's DAX index fell 0.02%, and France's CAC-40 finished down 0.13%.
The Dow Jones industrial average ended the week up 186.74, or 1.48%, at 12,767.57. The Standard & Poor's 500 is up 17.48, or 1.22%, at 1,455.54; the Nasdaq composite is up 36.49, or 1.48%, at 2,496.31.
The Russell 2000 index closed the week up 8.12, or 1.00%, to end at 818.15.
The Dow Jones Wilshire 5000 Composite Index - a free-float weighted index that measures 5,000 US based companies - ended the week at 14,733.65, up 177.59 points from last week. A year ago the index was at 12,987.59.