Updated from 4:08 p.m. EST

Stocks bounced to a mixed close Friday, as investors struggled to process a couple of big downgrades, renewed terrorism fears and a government report signaling inflation could be on the rise. Brokerage shares got a boost late in the session on news a settlement is close in the analyst conflicts-of-interest investigation.

The

Dow Jones Industrial Average

closed up 37 points, or 0.4%, to 8579, the

Nasdaq

was roughly unchanged at 1411, and the

S&P 500

tacked on 6 points, or 0.6%, to 909.

Among individual sectors, retail, brokerage, healthcare, and gold shares were showing the most strength while semiconductor and networking shares, which had been under pressure for most of the day, reversed course to trade higher. The Philadelphia Semiconductor Index advanced 0.6%. Airlines, tobacco and aluminum issues were weaker. Overall, market breadth was mixed. On the Nasdaq, losers edged the winners on volume of 1.7 billion shares. Advancers outpaced decliners 10 to 7 on the

New York Stock Exchange

, where 1.4 billion shares changed hands.

The late rally was fueled by reports that

Credit Suisse First Boston

and

Citigroup

(C) - Get Report

are prepared to pay fines of roughly $200 million apiece to put an end to a conflicts-of-interest probe into their investment banking and research relationships.

The Dow, which gained 144 points to 8542 Thursday, fared well Friday in light of negative research on

Intel

(INTC) - Get Report

and

General Electric

(GE) - Get Report

, two of its components. Merrill Lynch slapped a sell on Intel and various other semiconductor companies after re-examining the sector's valuation. The brokerage said all the price scenarios in the stocks are discounting a seasonal upturn in the fourth quarter, making the risk-reward calculus unappealing. Shares of Intel fell 46 cents, or 2.4%, at $18.68.

"I think there are too many nervous shorts trying to press their positions," said James De Porre, trader and contributor to

RealMoney.com

,

TheStreet.com's

sister site. "They keep getting squeezed and that is holding this market up." He also noted that Friday marks the simultaneous expiration of options on stocks and stock indices, saying that they have a tendency to pin stocks to strike prices, which should keep the market closer to the flatline.

Also cut by Merrill were

Conexant

(CNXT) - Get Report

,

Analog Devices

(ADI) - Get Report

,

Applied Micro

(AMCC)

and

PMC-Sierra

(PMCS)

.

Meanwhile, J.P. Morgan cut GE to underweight and dropped its 2003 earnings estimate by a dime to $1.60 a share. The brokerage said earnings growth and quality over the next two years will be "messy."

"While we continue to view GE as a well managed collection of mostly strong businesses, we think concerns about the fluidity of earnings estimates in the past few months and tough underlying fundamentals will weigh on the stock," wrote analyst Don MacDougall. The shares slipped 64 cents, or 2.6% at $23.86, in recent NYSE trading.

"The dominant thing impacting the market right now is big money funds that desperately need to rack up some good performance," DePorre said. "They don't care about downgrades or FBI warnings, they want to march this market up."

Also contributing to the negative tone was a government report showing inflation at the producer level rose 1.1% last month, and rose 0.5% excluding energy. The report was much higher than expected although economists warned the numbers didn't mean inflation was suddenly a huge concern. Separately, industrial production fell 0.8% in October, also a slightly worse-than-expected print.

The University of Michigan said its preliminary

consumer sentiment index rose to 85.0 in the first half of November, up from 80.6 in October, bouncing off its lowest level in nine years. The results were better than economists' consensus estimate of 82.3.

Dell

(DELL) - Get Report

saw its shares slip $1.21, or 3.9% to $29.82 despite meeting analysts' third-quarter financial target. However, the PC maker issued cautious comments on the fourth quarter, saying it sees no signs of a pickup in corporate spending in the period.

Meanwhile, reports Friday said the FBI is warning of a possible new terror attack, although it didn't provide a time frame or geographic specification. The attack will supposedly be intended to cause "mass casualties, severe damage to the U.S. economy and maximum psychological trauma." The report has not, however, changed the official terror threat level.

Government bonds moved higher, with the 10-year note up 7/32, to yield 4.03%. The long bond surged 21/32, yielding 4.91%.