Stocks End the Day in Neutral Territory

All three major indices erase early gains to close Friday around the flat line.
By Sarina Penn ,

Updated from 3:41 p.m. EDT

Stocks lost steam on Friday and booked a mixed finish as oil prices rebounded and enthusiasm faded for an employment report that wasn't nearly as bad as economists were expecting.

The

Dow Jones Industrial Average

, up some 120 points earlier, surrendered most of those gains, closing up 48 points, or 0.4%, at 13,058. The

S&P 500

tacked on 4 points, or 0.3%, to 1414. Turning in the worst performance was the

Nasdaq Composite

, which ended down 4 points at 2477 amid dismal results from

Sun Microsystems

( JAVA).

Turning in the worst performance was the

Nasdaq Composite

, which sagged by 13 points at 2468 amid dismal results from

Sun Microsystems

( JAVA).

"There was a big rush upwards yesterday, and I think that may have sapped most of the good news," said Edgar Peters, chief investment officer with Pan Agora. In the prior session, stocks soared in late reaction to the

Federal Reserve's

shift to a neutral tone earlier this week, when it cut the overnight lending rate by another quarter-point.

"Part of yesterday, I have a feeling, was a lot of short-covering," said Peters. "So that already took out a lot of the good upward momentum. The news today was good, but not good enough to sustain that momentum."

The deflation in equities came as crude-oil prices surged to take back some of their big losses over the past few days. Crude futures were rising $3.14 to $115.66 a barrel. Gold, meanwhile, added $7.10 to $858 an ounce.

Even so, investors continued pulling their funds out of the safe haven of Treasury securities. The 10-year note lost 18/32 in price to yield 3.84%, and the 30-year bond tumbled 20/32 in price, yielding 4.54%.

At the same time, initially robust gains for the U.S. dollar tapered off, though the greenback was still stronger, adding 0.3% against the euro at $1.5414. Against the yen, the dollar firmed by 0.8% at 105.16.

Each of the indices had launched the session higher in reaction to the Labor Department's nonfarm payrolls data, which showed a decline of 20,000 workers in April, whereas a

Bloomberg

survey predicted the number would be more around 75,000. Earlier this week, the ADP's figures showed a better-than-expected climb of 10,000 jobs last month.

"Basically, what I really think this indicates is that the economy is flat-lining, and right now flat-lining is better than what the market perceptions were," said Michael Strauss, chief economist with Commonfund, who had put the job-loss figure at 25,000. "It suggests that we're not getting the recession that a lot of economists and market participants have been forecasting for the past six to nine months."

"Historically, when we've been in the heat of a recession, we lost 250,000 jobs a month," Strauss continued. "We've lost 250,000 for the quarter. That's a stagnant economy, not a down economy."

Owen Fitzpatrick, head of equity strategy with Deutsche Bank Private Wealth Management, noted that, because the focus has shifted from worries about the financial sector to unease regarding whether or not the slowdown is transforming into a recession, the data "does alleviate some of that concern."

Still, his firm continues to call for a mild recession in the second and third quarters. Also, because the slowdown is being led by consumers, who are dealing with a host of issues aside from the housing crisis, he also doesn't expect the recovery to be a quick one.

"I don't think we're out of the woods yet," he said.

The unemployment rate unexpectedly improved slightly, falling to 5% from 5.1% the prior month. Meanwhile, revisions were minor for February and March, with only an additional 1,000 jobs lost.

Hourly wages picked up only 0.1% sequentially, compared with a 0.3% rise in the prior month, which Strauss believes was the best bit of news in the report. He pointed out that, while commodities have brought on inflationary pressures, if labor costs don't hang on for the ride, overall inflation can be kept under control.

"It makes even more sense for the Fed to be doing what they're doing," said Strauss, referring to the central bank's months-long series of interest-rate cuts, which some observers feared would exacerbate inflation. "We've got an input-cost problem with 12% of the goods in the economy: commodities. Away from that, we don't."

Elsewhere on the economic docket, the Commerce Department reported that March factory orders ramped up 1.4%, a full percentage point better than expected, and up from a revised 0.9% drop in the prior month. Nondurable goods -- such as food, clothing, and tobacco products -- had the strongest showing, bumping up 2.6% after three straight months of negative to flat growth.

Also, the Fed announced it would boost its term auction facility to $150 billion from $100 billion previously, a move that makes more funding available for financial institutions.

On the corporate front, Sun Microsystems weighed on tech shares, plunging 22.7% after the server maker

swung to a $34 million loss

in the fiscal third quarter and issued soft sales guidance for the current one, blaming tough economic conditions.

Staying in the tech space,

The Wall Street Journal

reported that

Microsoft

(MSFT) - Get Report

, which for three months has been attempting to pressure

Yahoo!

(YHOO)

to accept its stock-and-cash takeout bid, may go hostile and appeal directly to Yahoo! shareholders as early as today, citing people familiar with the matter. The paper also said, however, that Microsoft could well change its tune before making its announcement.

Microsoft shares were off 1.5% as Yahoo! rose 4.2%.

Back in earnings, Dow component

Chevron

(CVX) - Get Report

joined its oil-and-gas brethren in reaping rich profits from the recent spike in crude futures, and first-quarter income jumped 10% at $5.17 billion. Shares were up 32 cents at $95.26.

Viacom

(VIA.B)

, which owns MTV and other media properties, said first-quarter revenue was up 15% to $3.12 billion, partly thanks to strong sales of the Rock Band music-video game. The company's adjusted profit of 44 cents a share topped analyst predictions. Still, after a higher start, shares were lately dipping by 0.8% at $39.41.

Insurer

MetLife

(MET) - Get Report

was hovering just above the flat line after operating earnings topped the first-quarter consensus, even as shriveling investments dragged its overall profit down 37%.

Also, engineering-and-construction concern

KBR

(KBR) - Get Report

more than tripled its first-quarter earnings to $98 million, or 58 cents a share, handily beating the 34-cent analyst consensus from Thomson Financial. Revenue surged to a better-than-anticipated $2.52 billion. The stock advanced 6.2%.

Wynn Resorts

(WYNN) - Get Report

saw choppy trading on

mixed first-quarter results

. The casino-resort operator posted a 20% profit drop, falling a penny short of per-share analyst projections, but revenue was better than expected. Shares were hugging the flat line after spending most of the morning in the green.

In notable analyst research, Bank of America cut clothing retailer

Gap

(GPS) - Get Report

to neutral, but stamped

RadioShack

(RSH)

with a buy rating. Gap shares slid 2.1%, and RadioShack gained 1.3%.

Among other negative calls, Jefferies took drugmaker

Allergan

(AGN) - Get Report

down to hold from buy, Citigroup downgraded discount-travel Web site

Priceline.com

(PCLN)

. Shares were off 4.1% and 1.5%, respectively.

Markets abroad were tracking higher. In Asia, Tokyo's Nikkei 225 climbed 2.1%, and the Hang Seng in Hong Kong tacked on 1.9%. As for Europe, the FTSE 100 in London surged 2.1%. Germany's Xetra Dax and the Paris Cac jumped 1.4% and 1.5%, respectively.

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