U.S. Stocks Fall Towards Weekly Declines As Commodities Soar

NEW YORK (MarketWatch) -- U.S. stocks on Friday headed to weekly losses while the price of oil and other commodities soared, as anxiety over the direction of the economy mostly erased gains fueled by the technology sector.

"There is growing concern that it [credit-related trouble] is spreading to some extent to other forms of credit, including mortgage-backed securities, auto loans and credit cards delinquencies going up," said Owen Fitzpatrick, head of U.S. equity at Deutsche Bank.

The market is "always nervous going into the weekend," he added.

The Dow Jones Industrial Average declined 74.7 points to 12,171.7, off session lows that had the blue-chip index sliding nearly 150 points.

While equities chalked up losses, crude-oil prices surged more than 4% on supply worries, with futures for March delivery up $3.66 at $91.77. .

Other commodities soared as well, with the Reuters/Jefferies CRB index hitting a record high during Friday's session, prompting one analyst to question whether the trend might tie the Federal Reserve's hands in further cutting its target lending rate, currently at 3%.

"The surge in commodities prices serves as a reminder of the persistence of inflation, which has not abated much despite the deep economic slowdown in the U.S., and the difficulties the Fed would have in cutting rates as low as it did in 2003 when the funds rate reach 1%," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.

Of the Dow's 30 components, 21 posted losses, with financials among the hardest hit, with American Express Co. down 2.8% and J.P. Morgan Chase off 2.6%.

Blue-chip gains were led by McDonald's Corp. , up 2.2%, in the wake of sales results that had the fast-food giant continuing its growth spurt in January. .

Another blue chip, Coca-Cola Co. , climbed 1.4% after its upgrade to outperform from peer perform at Bear Stearns, with the broker citing solid results at PepsiCo and other consumer companies with a global reach.

Other stocks advancing on the blue-chip index included technology shares, with Microsoft Corp. up 1.5% and Hewlett-Packard Co. up 3.7%.

The S&P 500 dropped 4.19 points to 1,332.72.

"The economic numbers keep pointing to a slower economy, and consumer discretionary and financials are two groups that are going to bear the brunt of that," said Fitzpatrick.

After a brief detour in negative terrain, the technology-laden Nasdaq Composite gained 11.75 points ahead to 2,304.78, boosted by plans by Amazon.com to buy back as much as $1 billion worth of common stock.

Amazon shares advanced 3.6%.

CNet Networks Inc. also helped lift the Nasdaq, with the media company recently up 8.6% amid speculation that Google Inc. might be looking to buy a stake.

Volume on the New York Stock Exchange topped 1.2 billion, and declining stocks topped those advancing about 3 to 2. On the Nasdaq, 2 billion shares exchanged hands, and advancers outran declining issues, also by roughly 3 to 2.

Treasury prices rallied, sending yields on 10-year Treasury notes down to 3.648%.

Fed factors

In economic news, the Commerce Department reported inventories at U.S. wholesalers climbed 1.1% in December, the largest gain since August 2006. .

"Going by market action, we have not fully discounted the strong probability of a recession," said Al Goldman, chief market strategist at A.G. Edwards.

"The U.S. and global economies are looking decidedly shakier, in terms of both the tone of the high-frequency data flow and the fault lines in financial markets," said Ethan Harris, an economist at Lehman Brothers.

Other issues

Shares of MBIA Inc. were up 1% after the world's largest bond insurer, which is trying to hang on to its AAA rating, priced $1 billion in common shares to raise capital. .

McAfee rose 7.9% after the software maker's 63% quarterly profit drop prved less steep than anticipated.

Alcatel-Lucent shares fell 4% after the telecom-equipment maker posted higher fourth-quarter revenue than forecast, but warned of a first-quarter operating loss and halted its dividend.

Shares of Allergan Inc. dropped 5.6% after the Food and Drug Administration warned it has received reports linking the drug Botox sold by the company to severe side effects, including deaths. .

Overseas, the Nikkei 225 ended 1.4% lower, hurt by disappointing machinery orders data. But European stocks retained gains. .

U.S. stocks had climbed Thursday as bargain hunters returned to the market, hit by three days of losses that left the Nasdaq in bear-market territory.

By Kate Gibson