Stocks struggle Friday morning

Major gauges erase bigger morning losses, but remain weak as investors worry weak retail sales means housing, mortgage problems are spreading.

NEW YORK ( -- Stocks slipped Friday morning, but trimmed bigger early losses sparked by a weak retail sales report that raised worries that the turmoil in financial markets is spreading to the broader economy.

The Dow Jones industrial average (down 0.41 to 13,424.47, Charts) was barely lower nearly 90 minutes into the session. The broader S&P 500 (down 1.03 to 1,482.92, Charts) index was also a bit lower. The tech-fueled Nasdaq composite (down 4.32 to 2,596.74, Charts) lost a few points.


Retail sales rose just 0.3 percent in August, from an upwardly revised 0.5 percent in July. Economists surveyed by thought sales would rise 0.5 percent.

Excluding autos, retail sales fell 0.4 percent in August after rising an upwardly revised 0.7 percent in July. Economists thought sales excluding autos would rise 0.2 percent in the month, on average.

The report seemed to speak to fears that ongoing problems in the credit and mortgage markets are now spreading to the consumer. Consumer spending fuels roughly two-thirds of economic growth.

But the report was countered by other more positive items, including a report that showed consumer sentiment rebounded a little in September after a drop last month.

The University of Michigan's consumer sentiment index rose to 83.8 in September from 83.4 in August. Economists thought it would rise to 83.5.

In addition, stock investors could be betting that the weak retail sales report makes it more likely that the Federal Reserve will cut a key short-term interest rate by a half-percentage point when it meets Tuesday.

Market participants have been betting for a while that the central bank will cut rates, with the debate now about the extent of the cut.

In other news, the Bank of England had to approve emergency funding for lender Northern Rock, AP reported, reminding investors of the threat of a global liquidity crunch.

A hedge fund run by Goldman Sachs (down $0.35 to $188.12, Charts, Fortune 500) reportedly suffered a big loss in August, according to a published report. Several other Goldman funds have suffered big declines this summer due to the financial market woes.

Among other stock movers, Dow components American Express (down $1.71 to $58.89, Charts, Fortune 500) and Intel (down $0.29 to $25.06, Charts, Fortune 500) both slipped on Merrill Lynch downgrades.

Treasury prices erased early gains, with the yield on the 10-year note at 4.47 percent, up from 4.46 percent late Thursday. Bond prices and yields move in opposite directions.

U.S. light crude oil for October delivery fell 44 cents to $79.65 a barrel on the New York Mercantile Exchange after ending the previous session at a record closing high.

However, the record price is still below inflation-adjusted highs hit in the early 1980s, which would be equal to at least $95 a barrel today. Oil prices have advanced about 30 percent in 2007.

In currency trading, the dollar inched higher against the euro after falling to a record low on Thursday. The greenback was weaker against the yen.

COMEX gold for December delivery rose $5.10 to $723 an ounce. Top of page