U.S. Stocks Poised For Mixed Finish For The Week

NEW YORK (MarketWatch) -- U.S. stocks on Friday were mostly lower after a two-day winning streak, as an unexpected drop in retail sales and high anxiety over the fate of investment bank Lehman Brothers Holdings Inc. weighed on investors' sentiment.

"The U.S. economy is weak and likely getting weaker," said Kevin Giddis, managing director, Morgan Keegan & Co. "There seems to be no end to the shoes that keep dropping around the financial-services companies -- obviously we are dealing with an octopus -- and we just aren't sure who is next."

After dropping more than 150 points, the Dow Jones Industrial Average was more recently off 33.97 points at 11,400.74, a level that would leave it 1.6% higher from last Friday's close.

Of the Dow's 30 components, 15 posted afternoon losses, led by insurance giant American International Group Inc. , down 26.6% on worries the world's largest insurer may be downgraded by ratings agencies. .

AIG is among the companies thought to be holding mortgage-backed debt that has plagued the financial-services industry for more than a year, said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

Blue-chip retailers also felt pressure, with shares of Wal-Mart Stores Inc. down 1.5%. .

General Motors Corp. proved the blue chips' largest gainer, with shares of the automaker rising 5.4%.

The S&P 500 edged fractionally higher to 1,249.24, which would translate into a 0.6% gain on the week.

Consumer discretionary, financials and health care fronting sector declines on the S&P, while energy, utilities and materials led losses among the index's 10 industry groups.

The Nasdaq Composite declined 1.17 points to 2,257.05, a level that positions it for a fractional dip for the week.

The major indexes shaved their steep losses and flirted briefly in positive territory as the financial sector wavered back lower after a stint in the green.

Shares of Zions Bancorporation were a standout, charging 9.8% higher. Zions on Thursday said it sold 7.2 million shares for $250 million.

Volume on the New York Stock Exchange neared 847 million, with advancers just passing declining issues. On the Nasdaq, 567 million shares exchanged hands, and decliners topped advancers about 5 to 4.

Financial follies

The market in large part remains fixated on Lehman , which is still soliciting bids for its asset management business despite reports the entire bank is being sold, people familiar with the situation told Dow Jones Newswires.

Lehman shares fell 13.5%.

Shares of Washington Mutual Inc. were up 3.5%, gaining after the nation's largest thrift said late Thursday that it's well-capitalized and that its provision for loan losses will drop to about $4.5 billion from $5.9 billion in the second quarter.

Goldman Sachs upgraded Washington Mutual to neutral from sell, saying the lender's capital is absorbing pain. Moody's Investors Service, however, cut its credit rating to below investment grade.

Stock indexes pared their losses earlier after a reported rise in U.S. consumer sentiment in September. The University of Michigan/Reuters index in September climbed to 73.1, its highest level so far this year.

Ahead of Wall Street's start, the Commerce Department reported a 0.3% decline in August retail sales, worse than the 0.4% increase that expected by economists. .

Separately, the Labor Department said U.S. producer prices fell 0.9% in August, pushed lower in large part by declining energy costs. Core PPI prices, which exclude food and energy, gained 0.2% last month.

"The drop in energy prices led to a decline in PPI and consumer inflation expectations as well as an improvement in consumer sentiment. Nevertheless, retail sales disappointed in August," said Lehman Brothers Research analysts Zach Pandl.

Gold rush

Treasury prices shed initial gains, with two-year note yields lately ff two basis point at 2.2%. .

The dollar index , which tracks the greenback against a trade-weighted basket of currencies, fell 1% to stand at 78.98. .

The dollar's reversal from its recent rally encouraged investors to buy gold after nine consecutive sessions of declines for the precious metal, with the benchmark gold contract rising $19, or 2.5%, to end at $764.50 an ounce.

The greenback's weakness and worries that Hurricane Ike might disrupt energy production in the Gulf of Mexico propelled the price of crude oil higher, with the contract for October delivery up 31 cents to end at $101.80 a barrel. .

In overseas trading, European shares snapped a three-session losing streak, with the pan-European Dow Jones Stoxx 600 index gaining 1.7%. .

Russian equities rebounded after three sessions of steep losses, with oil and metal stocks leading the gains. .

Overnight, Asian equities closed out the week on a mostly positive note. Japan's Nikkei 225 Average moved up 0.9%. .

On Thursday, U.S. equities closed solidly higher after a manic day that began with sharp losses on speculation Lehman might not survive.

By Kate Gibson