U.S. Stocks On Roller Coaster Ride, Pressured By Financials

NEW YORK (MarketWatch) -- U.S. stocks on Friday shifted in and out of positive territory as investors weighted a surprisingly strong October jobs report and an unexpected rise in factory orders against ongoing credit-related upheaval in financial stocks.

"Given the problems in the credit markets and -- to borrow words from this week's Fed meeting -- the 'intensification' of the housing slump, many on Wall Street prefer to see data that is supportive of further rate cuts rather than indicative of economic strength," said Frederic Ruffy, an analyst at Optionetics.

The Dow Jones Industrial Average was recently off 30.7 points at 13,537.1, readying it for a weekly decline of roughly 2%.

Of the Dow's 30 components, 18 were trading lower, with the blue-chip benchmark's financial components among those hard hit.

Specifically, J.P. Morgan Chase fell 3.3%, while American International Group gave up 1.4%; American Express Co. traded down 0.9%; and Citigroup Inc. declined 2.9%.

"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 fell 4.78 points to 1,503.66, readying it for a weekly decline of slightly more than 2%.

The Nasdaq Composite rose 9.95 points to 2,804.78, leaving it virtually unchanged from the prior week's close.

Volume on the New York Stock Exchange came to 1.5 billion, with declining issues topping those advancing nearly 9 to 7. On the Nasdaq, 2.2 billion shares exchanged hands, and advancing stocks edged ahead of those declining.

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 9%.

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%.

Also lower, shares of eBay Inc. fell more than 0.9%. Bear Stearns downgraded the online auctioneer to peer perform from outperform.

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 10/32 at 103 15/32, its yield at 4.311%.

"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 moved the upside.

Crude for December delivery gained $1.69 to stand at $95.18 a barrel, while the benchmark gold contract climbed $15.30 to $809.00 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 he 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 Mitsubishi 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