Stocks dip after strong month, quarter

NEW YORK (CNNMoney.com) -- Stocks slipped Friday, at the end of a strong week and month on Wall Street, after some upbeat economic news and cautious comments from a Fed official cooled bets that the central bank will cut interest rates next month.

The Dow Jones industrial average (Charts) lost 0.1 percent on the session - but gained 4.1 percent on the month.

The broader S&P 500 (Charts) index eased 0.3 percent Friday but gained 3.6 percent in September. For the quarter, the S&P rose 1.6 percent.

The tech-fueled Nasdaq composite (Charts) edged 0.3 percent lower on the session and gained 4.1 percent on the month.

The major gauges also ended a tumultuous third quarter with gains. For the quarter, the Dow gained 3.7 percent, the S&P 500 added 1.6 percent and the Nasdaq composite added 3.8 percent.

Weighing on investor confidence was a better-than-expected reading on consumer spending in August, which surprised many investors given the tightened credit climate at the time and no signs of recovery in the housing market.

Investors have been betting that more negative economic news would push the Federal Reserve to keep cutting interest rates, as it did last week, to keep the economy from slipping into a recession.

While the report included a tame inflation reading that is favored by the Federal Reserve, it subdued expectations that the central bank would continue to cut interest rates at its next policy meeting in October.

Afternoon comments from St. Louis Fed President William Poole, a voting member of the 2007 FOMC, also subdued those expectations.

"The real theme for this week has been that bad news is clearly good news," said Ryan Larson, senior equity trader at Voyager Asset Management. "I think the news today has toned down that sentiment a little bit."

Supporting that view was a better-than-expected Chicago PMI reading - a key measure of regional business activity - and a surprisingly strong August construction spending report.

That contrasted with the University of Michigan's consumer sentiment reading for September, which came in weaker than expected.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by 6 to 5 on volume of 1.34 billion shares. On the Nasdaq, decliners topped advancers by almost 3 to 2 as 1.90 billion shares changed hands.

In corporate news, 3 Com (Charts) said it agreed to be bought by Bain Capital Partners and China's Huawei Technologies for $2.2 billion. Shares of the telecom gear maker surged 34 percent and topped the Nasdaq's most-actives list.

Alcatel-Lucent (Charts) stock jumped on reports that CEO Patricia Russo is under pressure to produce a major restructuring plan soon, or she may be forced to step down. Earlier this month, the telecom reported its third profit miss of the year.

On the downside, Rite Aid (Charts, Fortune 500) shares continued to slump in active trade one day after the drugstore chain reported a wider second-quarter loss and cut its full-year outlook.

Oil prices fell. U.S. light crude for November lost $1.28 to settle at $81.60 a barrel on the New York Mercantile Exchange. COMEX gold for December delivery jumped $10.10 to settle at $750.

Treasury prices fell, raising the yield on the 10-year note to 4.58 percent from 4.56 percent late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and also dipped versus other major currencies.