Stocks mixed amid conflicting economic signals

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NEW YORK -- Stocks were mixed Friday as a slide in consumer confidence heightened investor concerns about the economy but the government's wholesale inflation report eased some fears of higher interest rates.

Investors became discouraged after the University of Michigan's consumer sentiment index weakened in early April, falling from 88.4 to 85.3 in March. The figure was below the market's expectation of a reading of 87.0 and raised worries that consumers could rein in spending.

The report initially wiped out modest gains from earlier in the session that followed the Labor Department's report that its Producer Price Index was flat in March after stripping out the more volatile prices for energy and food. Overall, wholesale prices shot up 1% because of more expensive gasoline and food.

But the market recovered some lost ground as investors tried to make sense of conflicting economic signals. They're concerned about the economy in two regards: that the Federal Reserve will raise interest rates to contain inflation, and that economic growth is being stymied by the slumping housing market, rising energy prices and other factors. Although Friday's producer price index was softer than expected, it didn't suggest that inflation is easing. Furthermore, the University of Michigan's report suggested that consumers are more worried about inflation now than they were a month ago.

"Inflation is a little higher than investors would want, and the economy is a little weaker," said Michael Strauss, chief economist at CommonFund. "The equity market is put in a difficult position. The Fed might lower interest rates, but until we get closer to the easing process, stocks will see more gyrations up and down."

Investors were also hesitant to make big moves ahead of next week's spate of first-quarter financial results, which they are anticipating will show slowing corporate growth. The Dow Jones industrial average has shown gains in nine of the last 10 sessions, and a disappointing earnings season could reverse that upward trend.

In midday trading, the Dow was up 20.97, or 0.17%, at 12,573.93.

The blue chip index was helped by news from Merck & Co., which rose $4.14, or 9%, to $50.51 on Friday. The drugmaker soared after a federal judge in New Jersey dismissed a lawsuit related to its discontinued arthritis pain reliever Vioxx, and after the company raised its profit outlook for 2007.

Broader stock indicators were mixed. The Standard & Poor's 500 index was up 0.75, or 0.05%, at 1,448.55, and the Nasdaq composite index fell 4.42, or 0.18%, to 2,475.90.

Technology stocks were hurt by weakness in the chip maker sector, after Samsung Electronics Co., the world's largest memory chip maker, said its profit declined for a second consecutive quarter amid falling computer chip prices. Also, Apple Inc. said it would delay the release of Leopard, the next upgrade of its Mac operating system, until October. Apple fell $1.67 to $90.52.

Bonds fell after the consumer sentiment data, with the yield on the benchmark 10-year Treasury note rising to 4.76% from 4.74% late Thursday. The dollar was mixed against other major currencies, while gold prices rose.
A report from the Commerce Department that the U.S. trade deficit improved for a second straight month gave some support to stocks.

But inflation concerns were heightened by rising oil prices. On Friday, crude extended its rally as the International Energy Agency reported that world oil output declined in March. A barrel of light sweet crude rose 24 cents to $64.09 on the New York Mercantile Exchange.

One of the few Dow components to release its earnings before next week's rush, General Electric Co. rose 21 cents to $35.39 after it posted first-quarter results that matched Wall Street projections. However, the conglomerate said profit in one of its businesses was "tempered" by its U.S. mortgage business because of subprime loans.

In other corporate news, SLM Corp., the biggest U.S. provider of student loans that is better known as Sallie Mae, is in talks with buyout firms and may be bought for more than $20 billion, according to a report in the New York Times. Its stock soared $4.96, or 12%, at $45.71.

Also keeping enthusiasm about takeover activity afloat, Morgan Stanley bought 13 hotels from Japanese carrier All Nippon Airways Co. for about $2.4 billion. The deal roughly doubles the investment bank's portfolio of hotels in Japan. However, Morgan Stanley fell 38 cents to $79.69.

Advancing issues outnumbered decliners narrowly on the New York Stock Exchange, where volume came to 655.25 million shares.

The Russell 2000 index of smaller companies rose 0.03, or less than 0.01%, at 813.08.

Overseas, Japan's Nikkei stock average closed down 1.01%. In afternoon trading, Britain's FTSE 100 was up 0.72%, Germany's DAX index added 0.97%, and France's CAC-40 was rose 0.70%.
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