Wall Street is mixed as economic reports cast doubt on interest rates

Stock prices were mixed again Friday. Investors seemed hesitant to make any new commitments to stocks before Tuesday's meeting of the Federal Reserve Board.

The Dow Jones industrial average fell 15.54 points to 12,487.02. However, the Nasdaq composite index gained 1.25 points to 2,435.49.

For the week, the Dow was down 0.62 percent and the Nasdaq declined 0.58 percent.

Oil prices rose again Friday. Crude closed at $55.42 a barrel, up $1.19. For the week, oil gained 3.8 percent, one of its best performances in more than a month.

Another real estate report showed evidence of stability. The Commerce Department said new home sales rose by 4.8 percent in December. However, for all of 2006, sales were down 17.3 percent. As was the case with the Thursday report on existing home sales, inventories of new homes declined in the past month.

Stocks found some late-day strength as investors sought bargains after a two-day pullback that erased most of its 2007 gains. The market had its worst performance so far this year, despite optimism about earnings earlier in the week that lifted the Dow Jones industrials to its fourth record high of the year.

Strong results from Microsoft Corp. (Nasdaq: MSFT) helped lift technology stocks, while heavy machinery maker Caterpillar Inc. (NYSE: CAT) lent some support to the Dow Jones industrials. However, those gains were offset by economic reports that raised concerns about interest rates.

Investors had been holding on to hopes that central bankers might cut rates in the first half of the year. However, a steady stream of positive economic data like Friday's is making that unlikely and instead raising the possibility the Federal Reserve might resume its campaign of rate hikes that ended in August. The Fed's Open Market Committee meets this week.

"The biggest driver is concern the Fed might see more reasons to raise rates than to lower," said Arthur Hogan, chief market analyst at Jefferies & Co.

Long-term bonds were little changed, with the yield on the benchmark 10-year Treasury note flat at 4.88 percent, compared with late Thursday. Shorter-term bond yields rose during the session. The market on Thursday was hit by a lackluster report on sales of existing homes, which sent long-term interest rates sharply higher and raised concern about the housing market.

The dollar was mixed against other major currencies, while gold prices fell.

Friday's performance capped a week in which the stock market shuttled from great optimism about earnings and a possible interest rate cut in the first part of the year to dejection over an economy that could be strong enough to force a rate hike. Generally good earnings reports were cast aside while investors focused on the Fed's likely moves.

Steven Goldman, chief market strategist for Weeden & Co., said the retreat in stocks should offer buying opportunities. He said the market isn't "terribly overbought, but had been listlessly moving up" and believes "pulling back allows the market to clean out its excess."

Caterpillar, whose earnings are heavily tracked as an indication about the pace of U.S. construction, rose $1.46, or 2.5 percent, to $61.09 after it reported a 4.3 percent rise in fourth-quarter profit. The company also stuck by its full year forecast, which it believes will show continued strength in industries like mining, oil and gas.

Honeywell International Inc. (NYSE: HON), a diversified high-tech manufacturer, reported fourth-quarter profit jumped 14 percent. However, lackluster 2007 projections sent shares down 7 cents to $44.13.

Technology stocks rose after Microsoft reported second-quarter results beat Wall Street expectations, and projected double-digit growth in all of its core businesses through the rest of the fiscal year that ends June 30. Strong sales of its Xbox video game console helped offset the delayed release of its latest operating system, Vista.

Microsoft, which hit a 52-week high in the previous session, rose 15 cents to $30.60.

Amgen Inc. (Nasdaq: AMGN) declined after the world's largest biotechnology company said fourth-quarter profit missed fourth-quarter projections. The stock fell $3.35, or 4.5 percent, to $71.50.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 2.68 billion shares from 3.11 billion on Thursday.

The Russell 2000 index of smaller companies rose 3.95, or 0.50 percent, at 788.14.

Overseas, Japan's Nikkei stock average closed lower by 0.21 percent. At the close, Britain's FTSE 100 fell 0.66 percent, France's CAC-40 declined 0.44 percent, while Germany's DAX index dropped 0.48 percent.

The Associated Press contributed to this report.

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