NEW YORK (CNN/Money) -
Stocks turned in a mixed performance Friday but ended the week higher, mostly from Thursday's big rally on bets that a war with Iraq will be delayed.
A weekend summit that could affect the outcome of the Iraq crisis could have a big impact on Wall Street Monday.
The Dow Jones industrial average (up 37.96 to 7859.71, Charts) ended the day with a modest gain while the S&P 500 index (up 1.37 to 833.27, Charts) and the Nasdaq composite (down 0.44 to 1340.33, Charts) closed little changed.
But all three indexes rose for the week, breaking a two-week losing streak, thanks to Thursday's big advance. The Dow gained 1.5 percent for the week, the Nasdaq added 2.7 percent and the S&P 500 edged up 0.5 percent.
But all of that came from Thursday's huge rally, when the Dow jumped 3.6 percent and the Nasdaq soared 4.8 percent -- the biggest gains of the year. The buying was triggered by signs that any war with Iraq may be delayed or would be swift if one does occur. Those signs included a report that the U.S. military is already negotiating the surrender of Iraqi forces.
Friday's market was more fickle, following weak economic reports and amid concern ahead of a weekend summit in which U.S., British and Spanish officials will meet to discuss whether they will press for a new United Nations resolution requiring Iraq to disarm.
"It looks like this is going to be just reiterating the policy," said Robert Phillips, chief investment officer at Walnut Asset Management. "If something really new or dramatic comes out of it, we could see some impact on stocks Monday. But at this point it looks like war is going to happen and the market has already pretty much discounted it."
Although Iraq developments are likely to continue to dominate next week's action, investors will also take in new economic data that could be influential.
Federal Reserve policy-makers are to meet Tuesday to discuss interest rates and the economy. A majority of analysts surveyed by Reuters predict the Fed will hold its key short-term rate steady at 1.25 percent, although two-thirds predict a shift in the bias to reflect a greater risk of weakness than of inflation.
Next week also brings reports on housing starts, building permits, leading economic indicators and consumer prices.
A few companies release quarterly earnings as well, including Oracle (ORCL: Research, Estimates) Tuesday; Bear Stearns (BSC: Research, Estimates) and FedEx (FDX: Research, Estimates) Wednesday; and El Paso (EP: Research, Estimates), Goldman Sachs (GS: Research, Estimates), Lehman Brothers (LEH: Research, Estimates) and Morgan Stanley (MWD: Research, Estimates) on Thursday.
War fears remain
For several months now, Wall Street has been obsessed with the idea of a possible war and, with the exception of a couple of strong rallies, stocks have slowly fallen back toward where they were in October.
"We had a very nice rally yesterday and now you have some people wanting to take profits and others who missed out wanting to swoop in now," said David Briggs, head of equity trading at Federated Investors.
Thursday's rally was a technical bounce after two sessions of indexes carving out fresh five-month lows.
Stocks have recovered this week on hopes for a peaceful, or at least swift, resolution of any potential Iraq conflict. A morning speech by President Bush, in which he spoke about the need for a new credible leader in Palestine and peace in the Middle East, but did not mention Iraq, seemed to encourage investors in the early going, even as it followed more lackluster economic data.
But as the day's Iraq developments unfolded, investors grew skittish again.
Washington said at midday that it has dismissed a compromise proposal from Chile that would have given Iraq three weeks to disarm.
Meanwhile, U.S., British and Spanish leaders are set to convene on Portugal's Azores Islands over the weekend to discuss the next step in the pro-war campaign and whether or not to press for a United Nations Security Council vote on the issue. A British proposal that would have set a series of disarmament deadlines for Iraq failed to gain sufficient support among Security Council member nations this week.
Stocks lack heat after rally
Ford Motor Co. (F: down $0.37 to $6.76, Research, Estimates) shed 5 percent after Credit Suisse cut its 2003 earnings estimate, citing the late release of the automaker's production schedule and its warning of a 17 percent drop in production in North America.
Fellow automaker General Motors (GM: down $0.60 to $32.00, Research, Estimates), a Dow stock, lost 2 percent.
Additionally, shares of Irish drugmaker Elan (ELN: down $1.22 to $2.52, Research, Estimates) plunged 32 percent and were among the NYSE's most actively-traded issues on news that the Federal Trade Commission is investigating King Pharmaceuticals' (KG: down $0.88 to $11.11, Research, Estimates) pending deal to buy the rights to Elan's muscle relaxant Skelaxin. Earlier in the week, the Securities and Exchange Commission said it was probing King Pharmaceuticals' recent sales and pricing.
Among gainers, Dow component Hewlett-Packard (HPQ: up $0.66 to $15.66, Research, Estimates) rose nearly 5 percent after the company issued a statement late Thursday to address concerns that it had revised its first-quarter cash flow in a regulatory filing.
The company's chief financial officer stated that the revisions had left the company's cash position "strong and unchanged," but said that it would review the way it prepares initial financial statements. Additionally, HP said company revenue for February was up 3 percent from the year earlier. Analysts, on average, expect HP's revenue for the full April-ending quarter to be down 2.5 percent from a year earlier.
McDonald's (MCD: up $0.74 to $13.54, Research, Estimates) and Honeywell (HON: up $0.89 to $22.47, Research, Estimates) were the Dow's other big gainers.
Software maker Adobe Systems (ADBE: up $2.27 to $30.79, Research, Estimates) also rallied nearly 8 percent after it posted better-than-expected fiscal first-quarter earnings late Thursday.
The morning's economic data provided little fodder to the market action.
Rising oil prices pushed wholesale inflation up 1 percent in February, well above what economists on Wall Street expected.
Consumer sentiment continued to sag in March. The University of Michigan's sentiment index fell to 75 from February's 79.9, according to Reuters, a bigger drop than forecast.
Finally, industrial production edged up 0.1 percent in February while capacity use remained at a weak 75.6 percent.
Friday's trio of reports was the last set of economic data the Fed will see before its policy meeting March 18.
Market breadth was mixed. Winners beat losers 8 to 7 on the New York Stock Exchange, where volume reached 1.51 billion shares. On the Nasdaq, decliners edged advancers as 1.56 billion shares changed hands.
Yields on U.S. Treasury bonds eased as prices rose. The benchmark 10-year note gained 13/32 of a point in price, its yield falling to 3.70 percent. The dollar gained modestly against the euro but gave back some ground against the yen.
Oil prices continued to fall, with light sweet crude futures losing $1.31 to $33.36 a barrel in New York. Gold regained some strength after Thursday's drubbing, rising 60 cents to $336.60 an ounce in New York.