Stocks Fall After Weak ISM Report

The ISM manufacturing index unexpectedly declined, while construction spending also disappointed. Also in focus: auto sales

by Marc Hogan

Stocks finished lower Friday, as Wall Street suffered its second straight losing week. A key manufacturing report showed an unexpected decline, while construction spending dipped more than analysts projected. Late-day bargain hunting and short covering helped stocks pare early losses, says Standard & Poor's Equity Research.

On Friday, the Dow Jones industrial average slipped 27.8 points, or 0.23%, to 12,194.13, down 0.7% for the week. The broader Standard & Poor's 500 index fell 3.91 points, or 0.28%, to 1,396.72, a 0.3% weekly decline. Both benchmarks were down for a second week in a row. The tech-heavy Nasdaq composite dropped 18.56 points, or 0.76%, to 2,413.21, ending the week down 1.9% for its worst week since July.

NYSE breadth was slightly negative, with 18 issues declining for every 15 advancing. Nasdaq breadth was 19-12 negative.

Disappointing economic data topped the agenda Friday. The Institute for Supply Management's manufacturing index fell to 49.5 in November, from 51.2 in October. Wall Street projections called for an increase to 51.5.

A downside surprise was also in store for the beleaguered housing sector. Construction spending slid 1.0% in October, after 0.8% drop in September. Economists were expecting a 0.2% decline.

Federal Reserve Chairman Ben Bernanke spoke at a monetary policy conference but didn't discuss the economic or policy outlooks. Chicago Fed President Michael Moskow said the Fed may still need to hike interest rates further.

Domestic auto sales were unchanged at 16.1 million units in November, says Action Economics. Toyota (TM) led strength with a 15.9% sales increase. DaimlerChrysler (DCX) said sales rose 5%, stronger than expected, while Ford (F) posted a disappointing 10% decline. General Motors (GM) reported a 6% increase, weaker than economists anticipated.

Shares of GM gained amid reports billionaire investor Kirk Kerkorian sold his entire stake in the company to Bank of America. Kerkorian's investment company, Tracinda Corp., said last week it was trimming its holdings to 42 million shares, or 7.4% of GM, from 56 million shares, or 9.9%.

Fellow Dow component Boeing (BA) was higher on a report the aerospace company may bid for $15 billion of Indian military orders in the next 10 years. Merrill Lynch added the company to its Focus 1 list and raised its share price estimate from $97 to $105.

Home Depot (HD) was higher following a report the home-improvement retailer has become the target of a potential $100 billion leveraged buyout by firms including Kohlberg Kravis Roberts and Texas Pacific Group.

Advanced Micro Devices (AMD) was lower after the chipmaker received a subpoena from the Justice Department in connection with an investigation into potential antitrust violations involving graphics processors and cards.

Claire's Stores (CLE) was higher after the retailer said it retained Goldman Sachs to explore alternatives for improving shareholder value, including a possible sale of the company.

In earnings news, H&R Block (HRB) was lower after the tax preparer said its second-quarter loss nearly doubled, missing analyst expectations.

On the analyst front, Nasdaq (NSDAQ) was lower after Prudential lowered its rating on the stock.

In the energy markets, January West Texas Intermediate crude futures rose 30 cents to $63.43 a barrel.

European markets finished lower. In London, the FTSE-100 index fell 27.3 points, or 0.45%, to 6,021.5. Germany's DAX index shed 68.06 points, or 1.08%, to 6,241.13. In Paris, the CAC 40 index slid 73.59 points, or 1.38%, to 5,254.05.

Asian markets ended mixed. In Japan, the Nikkei 225 index gained 47.45 points, or 0.29%, to 16,321.78. In Hong Kong, the Hang Seng index slid 269.66 points, or 1.42%, to 18,690.82. Korea's Kospi index advanced 2.15 points, or 0.15%, to 1,434.36.

Treasury Market

Treasury yields tumbled amid the weaker-than-expected economic data. The 10-year note rose in price to 101-19/32 for a yield of 4.43%, while the 30-year bond climbed to 99-10/32 for a yield of 4.54%.

Hogan is a reporter for BusinessWeek.com in New York.