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By Grace Wong
CNNMoney.com
Friday, December 1st, 2006
NEW YORK (CNNMoney.com) -- The blue-chip Dow industrials lost as much as 131 points Friday afternoon before backing off its lows as concerns about the health of the economy kept stocks under pressure.
The Dow Jones industrial average (down 90.93 to 12,131.00,) tumbled 0.7 percent with about a half- hour left in the session. The Standard & Poor's 500 (down 9.67 to 1,390.96,) index fell 0.7 percent and the Nasdaq (down 29.23 to 2,402.54,) composite sank 1.2 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, as investors bet the Fed wouldn't raise rates anytime soon and may instead start cutting them.
Stocks have been volatile all week after suffering a steep selloff Monday, and there are few signs helping to improve sentiment.
A separate report released Friday showed construction spending fell more than expected in October, reflecting cooling in the housing sector.
A report issued Thursday that showed contraction in business activity in the Midwest also remained on the minds of investors.
But the ISM report is only one report, said Michelle Clayman, chief investment officer at New Amsterdam Partners. And while growth is undoubtedly slowing, the economy isn't necessarily headed for a so-called hard landing.
In other news, Chicago Fed President Michael Moskow, who will be a voting member of the Fed's policy committee next year, said during a speech that more rate hikes may be needed to keep inflation in check.
Richmond Federal Reserve President Jeffrey Lacker and Fed Chairman Ben Bernanke also spoke Friday, but neither commented about the economic outlook.
Fed Vice Chairman Donald Kohn is due to speak at a conference Friday night.
On the move
On the blue-chip Dow, 25 out of 30 components declined.
Home Depot was one of the few gainers. Shares rose 2 percent on speculation that buyout firms Kohlberg Kravis Roberts and Texas Pacific Group are circling the retailer.
GM shares edged higher - even after billionaire investor Kirk Kerkorian walked away from his investment in the world's largest automaker.
Kerkorian sold his entire stake in GM to Bank of America, according to a report by TheWall Street Journal. The first signs that Kerkorian was dumping his remaining shares surfaced Thursday.
GM also said Friday that U.S. sales rose 6 percent in November.
Elsewhere, Ford fell nearly 2 percent after the automaker said sales dived 10 percent in November from the year-ago period.
DaimlerChrysler, meanwhile, reported a 5 percent rise in its U.S. vehicle sales in November.
Accessories retailer Claire's Stores climbed 5 percent after it said it hired Goldman Sachs to explore a potential sale of the company.
Among tech stocks, chip shares tumbled. Chipmakers AMD and Nvidia both slid about 4 percent. The Department of Justice has subpoenaed both companies in relation to an investigation into antitrust violations.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by a margin of two to one on volume of 1.32 billion shares. On the Nasdaq, losers topped winners by a margin of five to two on volume of 1.44 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.
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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