NEW YORK (CNNMoney.com) - A steep selloff in the semiconductor sector Thursday weighed on the Nasdaq composite, but the Dow industrials and S&P 500 both managed to carve out fresh nearly five-year highs.

The Nasdaq composite (down 12.28 to 2,299.56, Charts) lost 0.5 percent.

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The Dow Jones industrial average (up 43.47 to 11,253.24, Charts) added 0.4 percent and the Standard & Poor's 500 (up 2.31 to 1,305.33, Charts) index added 0.2 percent, both closing at their highest points since May 22, 2001.

All three major gauges had been higher through the afternoon, as falling bond yields and a mild reading on consumer inflation soothed investor worries about higher interest rates.

But a selloff in chips intensified as the session wore on, taking the wind out of the Nasdaq and the technology stocks.

The Philadelphia Semiconductor (down 16.57 to 496.06, Charts) index, or the SOX, lost 3.2 percent.

"The blue chips have a nice little advance going, but the semiconductors are really dragging things down," said Chris Johnson, market strategist at Schaeffer's Investment Research, noting that the semiconductors and the Nasdaq tend to move in tandem.

Johnson said that the SOX was struggling at an important technical level that many traders watch, and that this was part of the reason the Nasdaq composite has not done as well as the Dow industrials and the S&P 500 over the last few weeks.

That the SOX closed below this key level was potentially a bearish sign for the chips and the Nasdaq in the short term.

A more than two percent jump in oil prices in the afternoon had a mixed effect on the stock market. Higher oil prices tend to hurt investor sentiment. However, the gains in crude also served to fire up the oil stocks Thursday, which added some support to the market.

After the close, Dow component American International Group (Research) reported quarterly earnings fell to 17 cents per share from 62 cents per share, due to a $1.64 billion charge it took to settle claims of fraud and bid rigging. Analysts surveyed by Briefing.com thought earnings would fall to 31 cents per share.

AIG shares lost around 2.3 percent in extended-hours trading.

Friday's focus will again be on economic news. Reads on February capacity utilization and industrial production are due before the open, while the March read on consumer sentiment from the University of Michigan is due shortly after the start of trade.

As of 5:45 p.m. ET, Nasdaq and S&P futures pointed to a flat open for stocks, when fair value is taken into account.

Worries about when the Federal Reserve might halt its interest-rate hiking campaign had held back stocks earlier in the month. Those fears were assuaged somewhat by Thursday's mild consumer inflation report, and the decline in Treasury bond yields.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 4.64 percent from 4.73 percent late Thursday. Bond prices and yields move in opposite directions.

Concerns about higher rates were also soothed by Wednesday's bullish Fed "beige book" read on the economy. That report enabled the stock market to rally Wednesday and the Dow and S&P 500 to break through key technical levels.

The February Consumer Price Index (CPI), released Thursday morning, rose 0.1 percent in the month, as expected, after climbing 0.7 percent in the previous month.

The so-called "core" CPI, which excludes the volatile food and energy components, increased 0.1 percent, short of forecasts for a boost of 0.2 percent. Core CPI was up 0.2 percent in January.

"The surprise was on the core side, and that's what the stock and bond markets are reacting to," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.

"While this was obviously a good month, we don't expect this to continue," Shapiro added. "We think it's going to be a slow drift up in core inflation going forward."

A variety of blue chips gained, with economically-sensitive stocks among the biggest gainers.

The Dow's leaders were Alcoa (up $0.33 to $30.23, Research), 3M (up $0.89 to $74.89, Research), Wal-Mart Stores (up $1.04 to $46.36, Research), Home Depot (up $0.49 to $42.75, Research) and General Motors (up $0.72 to $22.22, Research).

Altria (up $0.03 to $73.90, Research) boosted its 2006 earnings forecast. The move reflects $1 billion in tax benefits and the sale of the Milk-Bone brand by Kraft Foods, of which Altria is the majority owner.

Share of Altria (up $0.03 to $73.90, Research), a Dow component, ended little changed. Kraft (up $0.13 to $30.27, Research), which also lifted its 2006 earnings forecast, ended modestly higher.

The Dow's biggest loser was chip leader Intel (down $0.27 to $19.65, Research), which fell 1.4 percent.

Among other big tech stocks declining, Apple Computer (down $1.92 to $64.31, Research) lost another 2.5 percent. Apple stock has had a rough couple of months since peaking in January. (Full Story).

A number of computer hardware stocks fell, sending the Goldman Sachs Hardware (Charts) index down 1.5 percent.

Bear Stearns (down $0.94 to $133.27, Research) will have to pay $250 million to settle a mutual fund trading violations case, the Securities and Exchange Commission said Thursday. That sent the stock lower.

The stock had risen in the morning after becoming the latest investment bank this week to report higher quarterly results, following Goldman Sachs (down $1.31 to $147.69, Research) and Lehman Brothers (down $1.72 to $142.43, Research).

Market breadth was mixed. On the New York Stock Exchange, winners beat losers by almost two to one on volume of 1.65 billion shares. On the Nasdaq, decliners and advancers were narrowly mixed on volume of 2.39 billion shares.

The session's other economic news was more mixed.

Housing starts and building permits slowed less than expected in February, according to a separate report.

That gave a boost to the home building stocks. The Dow Jones Home Construction (up $19.34 to $892.25, Research) index added 2.2 percent and was one of the best-performing sectors on the day.

Investors seemed to take in stride the afternoon release of the March Philadelphia Fed index, a regional read on manufacturing. The Philly Fed fell to 12.3 from 15.4 last month. Economists surveyed by Briefing.com thought it would fall to 13.0.

U.S. light crude oil for April delivery rose $1.41 to $63.58 a barrel on the New York Mercantile Exchange, a gain of more than 2 percent.

That gave a boost to oil stocks, with the Amex Oil (up 14.63 to 1,080.48, Charts) index adding 1.4 percent.

In currency trading, the dollar fell against the euro and yen.

COMEX gold for April delivery fell 80 cents to $553.60 an ounce.

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