Wall Street treads water ahead of New Year

NEW YORK (CNNMoney.com) -- Stocks fluctuated Friday, capping off a choppy week of light trading, as economic and housing woes scuttled hopes for a year-end rally.

The Dow Jones industrial average (INDU) shed a few points near the close. The broader S&P 500 (SPX.X) was slightly higher and the tech-laden Nasdaq (COMPX) lost nearly 0.1 percent.

Treasury prices rose. The dollar slipped against the euro and the yen. Oil prices fell and gold prices rose.

Stocks rallied early Friday morning on a report of possible asset sales in the financial services sector. But gains were quickly pared by news of a steep decline in the number of new homes sold in November. Markets sank to session lows by mid-day but have since turned mixed.

The number of shares changing hands Friday was unusually low, since many traders are on vacation this week, which typically makes for more drastic swings in the market.

"Any news is magnified by the lack of participants," said Ryan Larson, a senior equity trader at Voyageur Asset Management.

With only one trading day left in the year, many investors are taking a more cautious approach to avoid skewing their year-end results.

"For 2007, we're in the bottom of the 9th with 2 outs," Larson said. "No one is willing to take on new positions."

Despite it being a difficult year for the housing market and the financial services industry, 2007 saw strong gains in technology stocks and the energy sector.

For the year, the Dow Jones Industrial Average is up 7.4 percent, which is less impressive than last year's 14.89 percent gain, but better than the 3.16 percent gain in 2005.

The Nasdaq composite index, on the other hand, is up more than 9 percent for the year, thanks to advances by companies like Amazon.com and Apple.

Shortly after the opening bell, the U.S. Department of Commerce said new-home sales fell by 9 percent in November, its largest drop in more than 12 years. Markets slumped immediately following the report as investors fretted over how the troubled housing market will impact the overall economy.

Meanwhile, the Chicago purchasing managers index, a survey of business conditions in the Chicago area, came in stronger than expected, signaling some economic growth.

On the financial services front, The Wall Street Journal reported Friday that U.S. and European banks, including Citigroup (C, Fortune 500) and HSBC (HBC), are considering the sale of a number of branches and units. The report follows a Goldman Sachs analyst report Thursday saying Citi could write down as much as $18.7 billion in the fourth-quarter and may have to cut its dividend by 40 percent.

Shares of Citigroup rose in early trading but fell more than 1 percent later in the day.

Other financial services companies like Merrill Lynch (MER, Fortune 500), Bear Stearns (BSC, Fortune 500) and Bank of America (BAC, Fortune 500) also traded lower Friday.

In other news, billionaire investor Warren Buffett is preparing to enter the bond insurance business, according to the Wall Street Journal. Other bond insurers, including MBIA (MBI) and Ambac Financial Group (ABK), have been battered by the fallout of the subprime mortgage meltdown.

Anticipation of Buffett's entry into the bond insuring industry was enough to send shares of MBIA and Ambac down roughly 14 percent in afternoon trade.

Market breadth was mixed. On the Dow, winners beat losers by a slim margin on a volume of 695 million shares. On the Nasdaq, decliners beat advancers two to three on a volume of 963 million shares.

U.S. light crude oil for January delivery fell 62 cents to $96 on the New York Mercantile Exchange.

Treasury prices rose, with the yield on the 10-year note falling to 4.07 percent, down from 4.19 on Thursday. Bond prices and yields move in opposite directions.

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

COMEX gold for February delivery rose $13 to $839.60 an ounce.