Wall Street tries to pull out of tailspin

NEW YORK (CNNMoney.com) -- Stocks moved off their lows but still remained in negative territory Friday as Wall Street couldn't seem to shake worries about credit markets, which sent stocks tumbling just a day earlier.

Oil prices surged more than $2 a barrel in afternoon trade, helping send stocks lower.

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The Dow Jones industrial average (down 35.68 to 13,437.89, Charts) had lost about 66 points, or 0.5 percent with an hour remaining in the session after falling by as much as 170 points earlier.

Both the broader S&P 500 (down 4.62 to 1,478.04, Charts) and tech-fueled Nasdaq composite index (down 10.27 to 2,589.07, Charts) slipped about 0.4 percent.

"There's been no fundamental problem, other than people are worried about the corporate bond market," said Tony Dwyer, equity market strategist at FTN Midwest Research. "This is one of those cases where fear is worse than reality."

Credit market fears and more troubling news from the housing sector sent stocks tumbling Thursday, with the Dow falling 311 points - its second biggest point loss so far this year.

More troubling news emerged Friday after the Britain-based snack and drinkmaker Cadbury Schweppes (up $0.77 to $49.21, Charts) delayed the sale of its North American beverage unit, which produces Dr. Pepper and Snapple, citing recent turmoil in the debt market.

Not including the Cadbury announcement, there have been roughly 20 buyout-related debt deals that have been postponed as credit markets have tightened.

Investors around the world have been rattled by signs of tougher conditions in credit markets, since tighter credit could raise the cost of borrowing for companies, hurting corporate earnings. This is likely to slow the buyout boom which has helped prop up stock prices.

Shares of the private equity firm Blackstone Group (down $1.05 to $24.65, Charts), which went public late last month, lost nearly 4 percent in Friday trade on the New York Stock Exchange on those fears.

The Dow selloff, which has cut the index's gain to about 8 percent for the year, paused briefly after Treasury Secretary Paulson said in a televised interview that the U.S. economy is the strongest he has seen in several decades, helped by growth outside the U.S.

His comments came after the Commerce Department reported the economy grew at a faster-than-expected pace of 3.4 percent in the second quarter, while a key inflation reading came in tamer than expected.

In other economic news, the University of Michigan reported an uptick in consumer sentiment in July in its monthly survey, although the reading fell short of estimates.

On the earnings front, Chevron (down $0.23 to $87.23, Charts, Fortune 500) reported improved quarterly earnings, while leading biotech Amgen (down $0.26 to $55.90, Charts, Fortune 500) reported a better-than-expected gain in earnings after the closing bell Thursday.

In corporate news, Gap (up $0.99 to $17.90, Charts, Fortune 500) announced late Thursday that it had named Glenn Murphy as the company's new CEO, sending shares of the apparel maker nearly 6 percent higher.

Shares of the spinal-products maker Kyphon Inc. (up $13.16 to $66.84, Charts) soared over 24 percent after fellow devicemaker Medtronic (up $0.07 to $50.99, Charts, Fortune 500) said it agreed to buy the company for $3.9 billion.

Market breadth was negative as losers beat winners by 5 to 3 on the New York Stock Exchange on volume of 1.66 billion shares. Decliners topped advancers on the Nasdaq by nearly 2 to 1 on volume of 2.12 billion shares.

U.S. crude for September soared to finish up $2.10 to $77.05 on the New York Mercantile Exchange.

Treasury bonds were little changed after a big run up in the previous session, as investors again sought shelter from falling stock prices, with the 10-year note yield at 4.78 percent. Bond prices and yields move in opposite directions.

The dollar gained versus the euro and was lower against the yen.

COMEX gold for December fell $2.80 to $672.30 an ounce.