Rate Fears Rattle Stocks

Broad averages close lower after a decent jobs report.
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Updated from 4:07 p.m. EST

Stocks closed to the downside Friday after a government report showing a fairly strong job market stoked fears the

Federal Reserve

will opt to maintain its hawkish stance on rates and inflation.

The

Dow Jones Industrial Average

lost 58.36 points, or 0.54%, to 10,793.62, having briefly turned positive earlier in the session. The

S&P 500

was off 6.81 points, or 0.54%, at 1264.03, and the

Nasdaq Composite

fell 18.99 points, or 0.83%, to 2262.58. All three indices finished above their session lows.

However, according to Michael Sheldon, chief market analyst with Spencer Clarke, things could have been worse. "There is still a feeling the Fed is close to the end of its tightening cycle, which limited the market's losses after a steep decline to start the day," he said. "Bonds stabilized, but oil finished the session higher. That, along with wage pressures weighed on us today. Investors should be prepared for more choppy trading as earnings season continues next week."

For the week, the Dow lost 113 points, or 1%, the S&P 500 was off 19 points, or 1.5%, and the Nasdaq fell 41 points, or 1.8%

About 1.75 billion shares changed hands on the

New York Stock Exchange

, with decliners beating advancers by a 5-to-3 margin. Volume on the Nasdaq was 2.25 billion shares, and eight stocks fell for every seven that rose.

On the fixed-income side, the benchmark 10-year Treasury was up 8/32 in price to yield 4.53%. The dollar was up against the yen and the euro.

Before the opening bell rang, the government said the U.S. economy added 193,000 jobs in January, while the unemployment rate dipped to 4.7%, its lowest level since July 2001. Economists expected to see 250,000 nonfarm jobs added, while the unemployment rate was expected to remain steady at 4.9%.

Both November's and December's results were revised higher for a total gain of 81,000. Average hourly wages rose 0.4% last month, slightly higher than expectations.

"There was worry that something stronger would keep the Fed going," says Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "There is a bit of concern with a bit of wage inflation, which corroborates yesterday's poor productivity numbers."

On Tuesday, the Federal Open Market Committee boosted its short-term lending rate to 4.5% but made remarks that some observers took as a sign that further increases could soon come to an end. The FOMC will reconvene on March 28, marking Ben Bernanke's first meeting as Fed chairman.

"If February is broadly similar, a March 28 rate hike is assured," says Ian Shepherdson, chief economist with High Frequency Economics. "The May meeting's risk is rising."

Also on the economic front Friday was the Institute for Supply Management's nonmanufacturing index, which dipped to 56.8 from 61.0 in December. Economists were looking for the index to come in at 59.5.

To view Gregg Greenberg's video take of the market, click here

.

Elsewhere, the University of Michigan released the final read on its consumer sentiment index for January. The measure fell to 91.2, short of economists' estimates of 93.1 and below the the preliminary number of 93.4. In yet another report, the Commerce Department said factory orders for December rose 1.1%, ahead of estimates calling for a 0.9% gain.

Crude prices finished higher Friday following a sharp drop Thursday that brought oil to its lowest level in three weeks. The March crude contract was up 69 cents to $65.37 a barrel. Despite the rise, the Amex Oil index finished down 1.3%.

Among other sectors, the Philadelphia Semiconductor Sector index lost 1.4%, while both the Amex Airline index and the S&P Retail index were off by more than 1.1%.

Friday was a quiet day on the earnings front after a rush of big-name companies over the last week.

Moody's

(MCO) - Get Report

posted fourth-quarter earnings that rose 22% to $150.1 million, or 50 cents a share. Revenue jumped 21% to $473.2 million from a year ago. Analysts anticipated earnings of 46 cents a share, according to Thomson First Call. Moody's fell 6 cents, or 0.1%, to finish at $63.89.

Wendy's

(WEN) - Get Report

swung to a fourth-quarter profit of $30 million, or 25 cents a share, from a loss of $141.4 million, or $1.25 a share, a year ago. Excluding items, earnings would have been 49 cents a share, beating the consensus by 2 cents. Revenue dipped to $977 million from $978 million a year earlier. Wendy's dipped 16 cents, or 0.3%, to $58.23.

Weighing on tech shares were disappointing postclose earnings reports from

Amazon.com

(AMZN) - Get Report

and

Gateway

(GTW)

.

Amazon tumbled 10.3% after the online retailer posted a soft fourth-quarter revenue gain and guided toward first-quarter sales that were toward the low end of analyst estimates. Gateway dropped 13% after the PC maker said sales to corporations and from its direct sales division plummeted.

Fossil

(FOSL) - Get Report

plunged 25.1% after the watchmaker missed sales targets as well, saying margins were hurt by a sales mix shift toward lower-margin businesses and geographical regions, in addition to higher freight costs and slightly increased markdowns. The stock lost $5.81 to $17.38.

Maytag

(MYG)

posted a fourth-quarter loss of $75 million, or 93 cents a share. The result swelled from a loss of $14.1 million, or 18 cents a share, last year. Sales increased 6.6% to $1.24 billion. Analysts expected a loss of 13 cents a share on revenue of $1.22 billion. Maytag, which is planning to merge with

Whirlpool

(WHR) - Get Report

, fell 51 cents, or 2.8%, to $17.51.

Video-game maker

THQ

(THQI)

said it had a fiscal third-quarter profit of $47.6 million, or 72 cents a share, down from $62.9 million, or $1.05 a share, last year. Revenue fell to $357.8 million from $400.3 million a year ago. The Thomson First Call consensus was for a profit of 65 cents a share on revenue of $319.7 million.

Looking ahead, THQ offered fiscal fourth-quarter guidance that fell below Wall Street's estimates. Shares were higher by 34 cents, or 1.3%, to close at $26.54.

Staying in gameland, Piper Jaffray downgraded rival

Electronic Arts

(ERTS)

to market perform from market outperform, citing valuation. Meanwhile, William Blair upgraded the stock to outperform from market perform, saying it believes shares of EA have bottomed out. Shares finished down 44 cents, or 0.8%, to $53.14.

On Thursday, the Dow finished down 101.97 points, or 0.93%, to 10,851.98, with

General Motors

(GM) - Get Report

losing 3.7%. The S&P 500 fell 11.62 points, or 0.91%, to 1270.84. The Nasdaq skidded 28.99 points, or 1.25%, at 2281.57.

"Had it not been for the impressive January same-store sales reports, decent forward-looking statements and the big drop in energy prices, the market drop would have been far worse," said Marc Pado, a market strategist with Cantor Fitzgerald. "With the understanding that we needed to keep our eyes on wage pressures and productivity, both of those components suddenly soured investors on the idea that the Fed was truly done."

Stocks were mixed overseas, with London's FTSE 100 up 0.2% to 5759 and Germany's DAX adding 0.1% at 5657. In Asia, Japan's Nikkei dropped 50 to 16,660, and Hong Kong's Hang Seng gave up 1.7% to 15,430.