U.S. Stocks End Volatile Session With Gains

NEW YORK (MarketWatch) -- U.S. stocks on Friday capped a volatile trading day with modest gains after investors weighed a surprisingly strong October jobs report and an unexpected rise in factory orders against ongoing credit-related upheaval in the financial sector.

"The economy is still in good shape, but the mood is definitely pessimistic; subprime is still the issue," said Matt King, portfolio manager for Bell Investment Advisors.

The Dow Jones Industrial Average climbed 27.2 points to 13,595.10, but ended with a 1.5% loss for the week.

Of the Dow's 30 components, 18 ended higher, after a day in which the blue-chip benchmark's financial components were hard hit.

Specifically, J.P. Morgan Chase fell 2.6%, while American International Group gave up 0.3%; American Express Co. traded down 0.05%; and Citigroup Inc. declined 2%.

"The economic data keeps interrupting the pity party" on Wall Street, said Jim Paulsen, Wells Capital Management's chief investment strategist. .

The S&P 500 closed up 1.25 points to 1,509.69, but ended with a weekly loss of 1.6%.

The Nasdaq Composite rose 15.55 points to 2,810.38, leaving it virtually unchanged from the prior week's close.

Volume on the New York Stock Exchange came to 1.7 billion, with declining issues topping those advancing 17 to 15. On the Nasdaq, more than 2.4 billion shares exchanged hands, and declining stocks just edged ahead of those advancing.

Financial fallout

Merrill Lynch & Co., in a bid to slash its exposure to risky mortgage-backed securities, has engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses, people close to the situation said, according to a story in The Wall Street Journal. .

Shares of the Wall Street powerhouse surrendered 7.8%.

The news on Merrill follows a bloody Thursday for financial stocks, which posted their biggest one-day drop as a sector in about five years. .

Overall, Wall Street had started higher after the government reported a rise in employment for September.

Analysts at Action Economics noted "fresh worries about a balance sheet cover-up at Merrill and lower guidance from Barclays." U.S.-listed shares of Barclays dropped more than 5%.

Safe havens

On the data front, the Labor Department reported the economy created 166,000 jobs in October, helping investors brush aside lingering fears over weakness in the housing and credit sectors. The growth in nonfarm payrolls marked the best showing since May, with the unemployment rate holding steady at 4.7%. .

Later bullish data failed to turn the market's slide, with investors bypassing word from the Commerce Department of an unexpected rise in orders for U.S.-made factory goods, with rose 0.2% in September, as opposed to the anticipated 0.7% decline. .

Against this backdrop, the benchmark 10-year Treasury note was up 9/32 at 103 14/32, its yield at 4.315%.

"As fears about the banking sector become more pervasive, the 'up in quality' trade from risky assets to Treasurys will likely become more popular as we end the week," said Kevin Giddis, managing director in charged of fixed income at Morgan Keegan & Co.

In commodities trading, crude-oil and gold futures both rallied.

Crude for December delivery gained $2.44 to a record close of $95.93 a barrel, while the benchmark gold contract rallied to close above $800 at their highest level in nearly 28 years, finishing up $14.80 to end at $808.50 an ounce.

Overseas action

European shares moved off their Friday lows in afternoon dealings, playing off the better-than-expected U.S. jobs data, although banks such as Dexia and Barclays continued in the red amid worries about exposure to troubled U.S. home loans. .

In Asia overnight, stocks fell sharply, led by financials as renewed concerns about the health of credit markets dragged Japan's Misubishi UFJ Financial Group, Australia's Macquarie Bank and Singapore's DBS Group Holdings, among others, lower.

On Thursday, U.S. stocks fell sharply, with the Dow industrials falling more than 360 points. Among other things, a downgrade of blue-chip bellwether Citigroup Inc. revived concerns about the financial sector.

By Kate Gibson