Stocks cut losses after choppy session

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NEW YORK (CNNMoney.com) -- Stocks cut losses Monday, ending mixed, as investors struggled with record high oil prices, a weakening dollar and more discouraging economic news.

The Dow Jones industrial average (INDU) lost a few points. The broader Standard & Poor's 500 (SPX) index ended very slightly up. The Nasdaq composite (COMP) lost 0.6%.

All three major gauges had been on both sides of "unchanged" throughout the session.

The session's economic news did little to soothe fears that the economy is in a recession or is in danger of falling into one.

The Institute for Supply Management's index of manufacturing activity came in lower than expected. The index, which surveys purchasing managers, dropped to 48.3 from 50.7 in February. Economists were expecting a reading of 49. Any reading below 50 indicates contraction.

Ahead of the ISM report, Philadelphia Federal Reserve President Charles I. Plosser signaled that the central bank is still in favor of lowering interest rates despite concerns about inflation.

Separately, the Commerce Department reported that construction spending fell 1.7% in January, marking its largest drop in 14 years.

"Fear is certainly driving the stock market," said Michael Darda, chief economist at MKM Partners.

While the data painted a dour picture, it was not a surprise, according to Darda. "We know we've got a weak economy," he added.

Darda thinks the key to overcoming fear in the stock market lies with improved visibility from the financial services sector. "I think we're closer to the end of the panic in the financial markets than the beginning," he said.

Oil, gold rally on dollar decline. Oil prices surged , with U.S. light crude for April delivery adding 61 cents to settle at $102.45 a barrel on the New York Stock Exchange, after setting an electronic trading record of $103.95. Crude prices have been supported in recent weeks by speculative investment and the softening dollar, which makes the commodity more attractive to overseas buyers.

Other commodities, such as precious metals and wheat, have also been in high demand as the dollar falters.

The greenback hit a three-year low against the yen but regained some ground against the euro. The dollar sank to an all-time low against the euro last week and traded near those same levels during Monday's session.

Corporate news. Aerospace company Northrop Grumman (NOC, Fortune 500) was awarded a $35 billion contract from the U.S. Air Force Friday, dealing a severe blow to rival plane maker Boeing (BA, Fortune 500). Northrop shares advanced 5% while Boeing dipped 2.6%.

United Technologies said Sunday it has made an offer to buy voting machine and ATM-maker Diebold for $2.63 billion. Diebold (DBD) shares surged 61%.

HSBC (HBC) said Monday that profit rose 21% last year despite significant impairment charges due to the subprime mortgage crisis in the United States.

Thornburg Mortgage (TMA) saw its shares plunge 51% after the mortgage lender said it received more margin calls, which force borrowers to repay loans or put up more collateral to secure them, as the value of its mortgage backed securities deteriorates. The announcement prompted ratings agency Standard & Poor's to lower the company's credit rating to "B-" from "B."

The Thornburg news highlighted credit concerns that have plagued the financial services sector. Shares of Citigroup (C, Fortune 500), Washington Mutual (WM, Fortune 500) and Bank of America (BAC, Fortune 500) all slipped.

Shares of online brokerage E*Trade (ETFC) inched higher after The Wall Street Journal reported that the company, which has struggled with bad bets on mortgage-backed investments, had named a new CEO.

From the auto industry, Ford (F, Fortune 500) and General Motors (GM, Fortune 500) reported February sales that were slightly better than expected, though both said sales declined. Toyota (TM) said sales fell 6.3% over last year, much steeper than the 3.5% increase that analysts had predicted.

Other markets. COMEX gold for April delivery added $9.20 to settle at $984.20 an ounce.

Treasury prices eased lifting the yield on the benchmark 10-year note to 3.55% from 3.51% late Friday. Bond prices and yields move in opposite directions.