Cold start to Wall St.'s December

NEW YORK (CNNMoney.com) -- It was a frosty first day of December for stocks Friday after a manufacturing report came in weaker than expected and slowdown worries gripped investors - although the major gauges mounted a comeback and cut their losses late in the session.

The Dow Jones industrial average (down 27.80 to 12,194.13, Charts) lost 0.2 percent, after sinking as much as 1 percent earlier in the session. The Standard & Poor's 500 (down 3.92 to 1,396.71, Charts) index fell 0.3 percent and the Nasdaq (down 18.56 to 2,413.21, Charts) composite sank 0.8 percent.

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Stocks have been volatile all week amid worries about the health of the economy. For the week, the Dow ended down 0.7 percent, the S&P 500 lost 0.3 percent and the Nasdaq sank 1.9 percent.

The market-moving report of the day came early in the session, when the Institute for Supply Management said its index for nationwide manufacturing activity fell to 49.5.

The measure, the lowest since April 2003, came in below 50 - which indicates contraction in the manufacturing sector.

"A combination of the weak ISM index and weak dollar is depressing the market today," said Emily Sanders, president of Sanders Financial Management.

The dollar fell to a 20-month low versus the euro and the 10-year Treasury yield tumbled to its lowest level in 10 months on the reading.

Chicago Fed President Michael Moskow, who will be a voting member of the Fed's policy committee next year, added to concerns. He said during a speech that more rate hikes may be needed to keep inflation in check.

But stocks attempted a turnaround late in the session and managed to cut their losses.

The ISM report is only one report, said Michelle Clayman, chief investment officer at New Amsterdam Partners, suggesting the initial reaction may have been overblown. And while growth is undoubtedly slowing, she said the economy isn't necessarily headed for a so-called hard landing.

A separate report released Friday showed construction spending fell more than expected in October, reflecting cooling in the housing sector.

The manufacturing and construction readings come on the heels of a report issued Thursday that showed contraction in business activity in the Midwest.

Next week, another string of reports hit the market. The one likely to garner the most attention will be the monthly employment report due on Friday. Readings on factory orders and consumer sentiment also are on tap.

On the blue-chip Dow, 20 out of 30 components declined.

Home Depot (Charts) was the biggest gainer. Shares rose nearly 3 percent on speculation that buyout firms Kohlberg Kravis Roberts and Texas Pacific Group are circling the retailer. After the close, the company said it has not had any discussions about a buyout.

GM (Charts) shares gained about 2 percent after the world's largest automaker said U.S. sales rose 6 percent in November.

Billionaire investor Kirk Kerkorian sold his entire stake in GM to Bank of America (Charts), according to a report by The Wall Street Journal, but signs that Kerkorian was dumping his shares had surfaced Thursday.

Elsewhere, Ford (Charts) fell nearly 2 percent after the automaker said sales dived 10 percent in November from the year-ago period.

DaimlerChrysler (Charts), meanwhile, reported a 5 percent rise in its U.S. vehicle sales in November.

Accessories retailer Claire's Stores (Charts) climbed 4 percent after it said it hired Goldman Sachs to explore a potential sale of the company.

Among tech stocks, chip shares tumbled. Chipmakers AMD (Charts) and Nvidia (Charts) both slid about 4 percent. The Department of Justice has subpoenaed both companies in relation to an investigation into antitrust violations.

Intel (Charts), the world's largest maker of chips for PCs, said it didn't believe it was a target of the DoJ probe, but shares fell 3 percent after rival AMD said it was gearing up to offer a new chip next year.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by a slim margin of six to five on volume of 1.88 billion shares. On the Nasdaq, losers topped winners by a margin of nearly three to two on volume of 2.02 billion shares.

Oil prices turned around early in the afternoon after Saudi Arabia's oil minister called more production cuts. U.S. light crude oil for January delivery added 32 cents to $63.45 a barrel on the New York Mercantile Exchange

The dollar kept up its slide against the euro and also fell against the Japanese yen as currency investors bet the Fed may have to start cutting rates next year.

Treasury prices climbed, lowering the yield on the benchmark 10-year note to 4.43 percent, down from 4.47 Thursday. Bond prices and yields move in opposite directions.

Gold futures fell $2.30 to $650.60 an ounce.

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