U.S. Stocks End Mixed After Weak GDP

NEW YORK (MarketWatch) -- U.S. stocks ended mixed and little changed on Friday, capping a week of gains in which the Dow Jones Industrial Average crossed the 13,000 mark for the first time, as news of a sharp slowdown in economic growth in the first quarter offset optimism about earnings, including Microsoft Corp.'s latest results.

Though the Dow advanced Friday, market action failed to convince technicians, who noticed that more stocks fell than advanced overall.

"Strength in the Dow [...] masks otherwise weak market action," said Frederic Ruffy, analyst at Optionetics. "The economic data is to blame for today's lackluster market action."

The Dow Jones Industrial Average gained 15 points to close at 13,120, after gyrating between positive and negative territory for most of the session. The gains were narrow with only 12 of the Dow's 30 components rising.

For the week, the Dow still advanced 1.2%.

"The problem with today's GDP number is what happens after earnings," said Barry Hyman, market strategist at EKN Financial Services. "We need a positive economic background for the market to continue its upward trend, so I'd expect some concern to re-enter the market based upon that GDP number."

Weighing on the Dow were shares of General Motors Corp. , Home Depot Inc. , Intel Corp. , Merck , and JP Morgan Chase & Co. .

But Microsoft bucked the trend, providing support for the blue-chip average. Its shares were up 3.5% after the software giant posted a 65% profit rise, buoyed by sales of its new Vista operating system.

And General Electric Co. also gained, rising 2.8% after Citigroup suggested the company would benefit from spinning off its TV networks, movie studios and mortgage lending units.

The broad S&P 500 index remained in negative territory, falling 0.2 points to 1,494. For the week, it still rose 0.7%.

The Nasdaq Composite gained 2.8 points to 2,557. It posted weekly gains of 1.2%.

Trading volumes showed 1.5 billion shares exchanging hands on the New York Stock Exchange and 2.1 billion shares on the Nasdaq stock market. Declining issues outpaced gainers by 18 to 13 on the NYSE and by 18 to 11 on the Nasdaq.

By sector, computer technology , software , and networking advanced, while airlines , transportation and oil fell.

Microsoft's earnings provided support for technology shares, but the chip sector was under pressure after Broadcom's second-quarter revenue forecast didn't meet expectations. The stock fell 4.2%.

And SanDisk fell 2.6% after saying weak prices for flash-memory chips will continue through the summer.

Among internet shares, Amazon.com lost 0.3% after being downgraded to hold from buy at Stifel Nicolaus, due to concerns over valuation. The Internet-based retailer reached a seven-year high of $63.04 in intraday trading on Thursday.

Airlines slumped after JP Morgan downgraded nearly the entire sector and as oil prices advanced. Alaska Airlines , Continental Airlines Inc. , UAL Corp. and AMR Corp. fell sharply.

Weak growth

Prior to earnings season, during which economic concerns have been set aside, investors worried that inflation pressures were preventing the Federal Reserve from cutting interest rates to stave off a hard landing.

Friday's data likely revived those concerns.

Hit by a weak housing market, the U.S. economy slowed to 1.3% real annualized growth in the first quarter, the weakest expansion in four years. Economists polled by MarketWatch were expecting growth of 1.7%.

"Growth at this pace will loosen the labor market," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "The Fed will blink soon."

The Philadelphia housing sector index dropped 1.6%, led by the likes of Pulte Homes Inc. , Toll Brothers Inc. and KB Home .

But complicating the economic picture, employment costs continued to rise in the first qarter, gaining 0.8% compared with 0.9% in the fourth quarter. Economists expected a 0.9% increase.

Meanwhile, the University of Michigan's final consumer-confidence reading came in at 87.1 for April, a slight drop from March but above expectations for a reading of 85.0.

According to EKN's Hyman, the Fed coming to the rescue of the economy -- and earnings -- is "still a long way away."

"I don't think the Fed can ease unless it sees the whites of the eyes of a recession, because inflation is not easing," he said.

Following the data, the dollar resumed its downward course against both the euro and the yen. Separately, the Bank of Japan as expected held interest rates at 0.5%.

And crude-oil futures rebounded from early weakness, adding $1.40 to $66.46 a barrel. For the week, the contract rose 3.7%.

Among oil shares, Chevron Corp. still dropped 0.1%. It earlier reported first-quarter earnings rose above year-earlier levels and topped expectations, while revenue declined.

Gold futures bounced back on dollar weakness, after falling sharply Thursday, gaining $3.80 to $681.80 an ounce. Gold shares finished mixed, with Newmont Mining Corp. and Freeport McMoRan Copper & Gold falling, while Meridian Gold Inc. advanced.

By Nick Godt