Stocks see moderate gains

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NEW YORK -- Stocks gave up a sharp advance to show more modest gains Friday after a quick succession of seemingly contradictory signals about the economy left investors leery of making any big bets.

The market began the day with investors pleased by Microsoft Corp.'s $44.6 billion bid for Internet company Yahoo Inc. The merger news, which has been in short supply for months, energized stocks initially.

But a mix of economic news reminded investors of the continuing fallout from the housing and mortgage crisis.

The first blow came from the Labor Department's worrisome employment report for January. The economy lost 17,000 jobs, marking the first contraction of the labor market in more than four years. The news confounded economists, who were expecting 70,000 new jobs, according to Thomson/IFR.

The news was somewhat mitigated by an upward revision to November payrolls and news that the unemployment rate ticked lower to 4.9% last month from 5.0% in December.

The Commerce Department added to the fray, reporting that construction spending dropped 1.1% in December -- twice what analysts expected and the most in 15 months.

And rating agency Moody's Investors Service warned on a conference call Friday that it expects to downgrade some bond insurers, though the company did not specify which companies might see their ratings change. Moody's said it expects its review to be complete by mid-to-late February.

Stocks did get some ballast from a report showing a pickup in the nation's manufacturing sector in January. The Institute for Supply Management, a business group, which said its index of manufacturing activity rose to a reading of 50.7 from 48.4 in December. Wall Street had expected the figure would come in at 47, a figure that would indicate a contraction of the manufacturing sector.

"The market is somewhat confused here," said Nicholas Raich, director of equity research at National City Private Client Group in Cleveland. "A lot of the economic data points -- when you really look at them -- there are a lot of mixed signals."

In late morning trading, the Dow Jones industrial average rose 31.38, or 0.25%, to 12,681.74 after climbing more than 200 points Thursday. Early in Friday's session the Dow had been up nearly 120 points.

Broader stock indicators advanced. The Standard & Poor's 500 index rose 7.24, or 0.53%, to 1,385.79, and the Nasdaq composite index slipped 0.38, or 0.02%, to 2,389.48.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 695.1 million shares.

Bond prices showed little change. The yield on the benchmark 10-year Treasury note, which moves opposite its price, stood flat at 3.59% from late Thursday.

The dollar rose against other major currencies, while gold prices fell.

Light, sweet crude oil fell $1.13 to $90.62 on the New York Mercantile Exchange.

On Thursday, Wall Street ended its worst January since 1990 with a huge advance, after investors set aside worries about bond insurers and grew more optimistic that the Federal Reserve's interest rate cuts will indeed help lift the economy.

Hopes that the struggling bond insurance industry will get some relief were stoked after CNBC reported that Citigroup Inc., Wachovia Corp. and six top European banks have banded together to work with New York State Insurance Superintendent Eric Dinallo to bail out struggling bond insurers.

The report should be encouraging to investors who had feared that such major insurers as Ambac Financial Group Inc. and MBIA Inc. would not be able to attract enough capital to avoid downgrades from ratings agencies.

Ambac rose $1.25, or 10.7%, to $12.89, while MBIA fell 67 cents, or 4.3%, to $16.17.

Other technology stocks also should be in view. Google Inc. failed to meet analysts' expectations for its earnings and Motorola Inc. said it is mulling a sale of its handset division.

Google also fell $48.45, or 8.6%, to $515.85. Motorola advanced $1.18, or 10%, to $12.68.

Yahoo surged $8.45, or 44%, to $27.63, while Microsoft, one of the 30 stocks that make up the Dow industrials, fell $1.92, or 6%, to $30.68.

The Russell 2000 index of smaller companies rose 6.73, or 1.03%, to 720.62.

In overseas trade, Japan's Nikkei closed down 0.70%. In Europe, London's FTSE rose 2.54%, Frankfurt's DAX gained 1.71% and Paris' CAC 40 rallied 2.22%.
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