Stocks temper gains after sharp drop in new home sales stirs concerns

NEW YORK -- Stocks gave up much of an early rally Friday after the government reported sales of new homes fell in November to their lowest level in more than 12 years, stirring concerns that nervous consumers might tamp down their spending.

The Commerce Department report that new home sales fell 9 percent from October to a seasonally adjusted annual rate of 647,000 stirred investor concerns that consumers worried about falling housing prices could further slow the nation's economic growth.

The market had shown early gains after a pullback Thursday that followed the assassination of Pakistani opposition leader Benazir Bhutto and a weak reading on big-ticket manufactured items. The major indexes each lost more than 1 percent, including the Dow Jones industrial average, which dropped nearly 200 points.

While stocks came off their highs Friday amid concerns about housing, the indexes still managed to show modest gains. The Chicago purchasing managers' index perhaps helped buoy investor sentiment after registering a stronger-than-expected increase for December manufacturing activity in the Midwest.

Wall Street is closely following the economic data to try to determine whether weakness in the housing and financial sectors is undercutting the overall economy, possibly leading to a recession.

Quincy Krosby, chief investment strategist at The Hartford, contends investors for now appeared relieved that events in Pakistan hadn't appeared to spin out of control and about the growth shown in Midwest manufacturing. While the sour housing news could have weighed on some investors, the session's light volume likely exaggerated any moves, she said.

"What you have is a very thinly traded market so any news, whether it's good news or bad news, can skew the market actually quite dramatically one way or the other," she said.

In late morning trading, the Dow Jones industrial average rose 34.95, or 0.26 percent, to 13,394.56. The Dow had risen more than 91 points before the arrival of the housing data.

Broader stock indicators also rose. The Standard & Poor's 500 index increased 5.96, or 0.40 percent, to 1,482.33, and the Nasdaq composite index rose 8.90, or 0.33 percent, to 2,685.69.

Bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, fell to 4.10 percent from 4.19 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude moved up 78 cents to $97.40 per barrel on the New York Mercantile Exchange. The rise in recent days has renewed talk of the psychological benchmark of $100. Oil saw its peak of $99.29 on Nov. 21.

The economic readings arriving Friday painted a mixed picture.

The pace of sales of new homes in November proved much weaker than economists had been expecting. Wall Street had predicted sales would drop about 1.8 percent to a pace of 715,000.

In a bright spot, the purchasing managers index, considered a precursor of the national Institute for Supply Management report being released Wednesday, rose to 56.6 from 52.9 in November. Economists, on average, had been expecting a showing of 52.0, according to Dow Jones Newswires.

In one sign of weakness, the PMI's December employment index fell to 49.0 from 54.4 in the prior month. Wall Street regards solid employment as the crucial underpinning of the economy's well-being because it feeds consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Krosby noted that while most portfolio managers having closed their books on the year, those sticking around are likely to pile into stocks like Apple Inc. and Google Inc. that have shown strong performance for the year. With many professionals paid according to their performance, a bit of window-dressing at year-end can bump up their pay.

"I don't think that anyone at this stage wants to stake out a new position," she said.

In corporate news, a New York state regulator said Warren Buffett's Berkshire Hathaway will receive a license to open a bond insurance business in the state. Berkshire Hathaway said Friday it agreed to buy NRG N.V., the reinsurance unit of ING Group said for about $435.7 million in cash.

Genesco Inc. jumped $4.94, or 15 percent, to $38 after a judge ruled The Finish Line Inc. cannot back out of its $1.5 billion purchase of Genesco. Finish Line fell 69 cents, or 22.6 percent, to $2.36.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 336.1 million shares.

The Russell 2000 index of smaller companies rose 4.38, or 0.57 percent, to 777.89.

Overseas, Japan's Nikkei stock average fell 1.65 percent. In afternoon trading, Britain's FTSE 100 fell 0.47 percent and France's CAC-40 showed little change.