Stocks Spin Wheels

The averages end narrowly mixed as economic data sows more anxiety.
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Updated from 4:02 p.m. EDT

Investors were paralyzed Thursday amid evidence Hurricane Katrina is sapping economic growth and stimulating inflation.

The

Dow Jones Industrial Average

ended up 13.85 points, or 0.13%, at 10,558.75, while the

S&P 500

rose 0.57 point, or 0.05%, to 1227.73. The

Nasdaq Composite

lost 3.18 points, or 0.15%, to 2146.15. The 10-year Treasury was down 13/32 in price to yield 4.21%, while the dollar rose against the euro and the yen.

About 1.55 billion shares changed hands on the

New York Stock Exchange

, with decliners outpacing advancers by a 6-to-5 margin. Trading volume on the Nasdaq was 1.72 billion shares, with decliners outpacing advancers 3 to 2.

McDonald's

(MCD) - Get Report

helped shore up the Dow with a 3.4% gain but was offset by losses in

Caterpillar

(CAT) - Get Report

,

Wal-Mart

(WMT) - Get Report

,

3M

(MMM) - Get Report

and

Pfizer

(PFE) - Get Report

.

Oil finished lower after gaining more than 3% Wednesday on an Energy Department report that showed a steep decline in crude inventories last week. In Nymex floor trading, the October crude contract closed down 34 cents to $64.75 a barrel.

"The market seems unsure of itself again," said Brian Williamson, an equity trader with Boston Company Asset Management. "It's been a fairly quiet

day with not a whole lot to really push the market either way. Plus, oil hasn't moved much, keeping us range-bound for now."

While oil's recent appreciation paused, investors were hit with a flurry of economic reports that suggested Hurricane Katrina's impact was broader than previously believed. The worst for stocks was the Philadelphia Fed's monthly update of regional manufacturing activity in the mid-Atlantic, which came in well below forecasts and showed the biggest jump in its prices-paid gauge since the 1970s.

The report's general economic index for September was 2.2, down from 17.5 and well below economists' forecasts. Its new orders index fell by 20 points, recording its first negative reading since April 2003.

The Philly Fed report is one of the first major economic indicators to encompass conditions in the aftermath of Katrina's Aug. 29 landfall. Not so the Labor Department's August consumer price index, which was also released Thursday and showed headline inflation rising 0.5% thanks to surging energy prices.

Stripping those out, the "core" CPI rose a more benign 0.1%.

"The headline was boosted by an 8.3% jump in gas prices, with more to come," said Ian Shepherdson, chief economist with High Frequency Economics. "In the core today there is no inflation problem. But the

Fed's

worry is that a tight labor market will lift 2006 and 2007 core.

Shepherdson predicted a 25-basis-point hike at Tuesday's Federal Open Market Committee meeting, a sentiment shared by Stephen Sachs, director of trading with Rydex Investments.

"The Fed has every reason in the world to stop rate hikes, but with that said, I don't think they do," Sachs said. "Had the meeting been a week ago, they would've stopped. Because the market has settled down, I think they'll hold the course and raise rates."

Also on the economic front, the Labor Department said that initial jobless claims rose by 71,000 to 398,000 for the week ended Sept. 10, the largest increase since January 1996. The four-week moving average rose to 340,750. The department said that about 68,000 claims were related to Hurricane Katrina and that it expects more in weeks to come.

A 5.4% decline in automobile and auto parts inventories pulled U.S. business inventories down 0.5% in July, according to the Commerce Department. Sales were up 1.1% for the month.

Stocks had fallen for two straight days, wiping out about 140 points on the Dow and leaving the S&P 500 just 2 points above its 50-day moving average of 1225. Higher oil, concerns about next Tuesday's Federal Reserve meeting and Chapter 11 filings Wednesday by

Delta

(DAL) - Get Report

and

Northwest

(NWAC)

have fueled the moves.

Northwest tumbled 99 cents, or 52.9%, to close at 88 cents. Delta jumped by 4 cents, or 5.6%, to 75 cents.

The ripples of the bankruptcies could be significant as companies that lend and lease to the two carriers tally up their exposure. On Wednesday,

Disney

(DIS) - Get Report

said it might have to write off a $100 million investment in Delta that includes various aircraft leases.

General Electric's

(GE) - Get Report

GE Capital says it has about $2.8 billion in loans to the companies but doesn't see a material impact at this point.

Meanwhile, the market continues to contend with mother nature, as Hurricane Ophelia slams into the North Carolina coast with sustained winds of about 80 mph. While the storm is expected to do little structural damage, officials are worried about floods as the center moves inland.

In corporate news,

Newell Rubbermaid

(NWL) - Get Report

said will reduce its workforce by 5,000 and close manufacturing plants as part of a restructuring plan. The cuts are expected to save $120 million a year in costs by 2008 but will result in $295 million to $340 million in restructuring charges. The stock gained 14 cents, or 0.6%, to close at $22.95.

Motorola

(MOT)

has hired J.P. Morgan Chase to pursue a possible sale of its automotive-products unit, according to

The Wall Street Journal

. The unit, which makes vehicle navigation and safety sensors, is expected to fetch $1 billion to $2 billion. Motorola lost 20 cents, or 0.8%, at $23.67.

According to a report in the

New York Post

,

Time Warner

(TWX)

is in advanced talks with

Microsoft

(MSFT) - Get Report

about selling a stake in America Online. If acquired, AOL is expected to be combined with Microsoft's MSN network, the report said. Microsoft would pay some money to Time Warner, leaving the two companies as partners in the deal.

Time Warner added 58 cents, or 3.2%, to $18.50. Microsoft was down 4 cents, or 0.2%, to finish at $26.27.

Among earnings reports,

Bear Stearns

(BSC)

posted a third-quarter profit of $378.3 million, or $2.69 a share, up 34% from $283.3 million, or $2.09 a share, a year ago. Results beat the Thomson First Call consensus of $2.38 a share. Revenue in the quarter jumped 18% to $1.81 billion. Still, Bear Stearns fell $2.60, or 2.5%, to $102.90.

Meanwhile, Citigroup downgraded

Fifth Third Bancorp

(FITB) - Get Report

to hold from buy after the bank's disappointing mid-quarter update. The firm also cut 2005 and 2006 earnings projections for Fifth Third. The stock was lower by $2.07, or 5.1%, to close at $38.45.

Pier 1 Imports

(PIR) - Get Report

posted a second-quarter loss of $10.2 million, or 12 cents a share, after a profit of $10.4 million, or 12 cents a share, last year. Sales fell to $438.6 million from $452.3 million, as same-store sales dropped 7.7%. The Thomson First Call consensus was for a loss of 13 cents a share on revenue of $437 million.

Pier 1 did not offer an earnings forecast because of the recent unpredictability of its business. The stock rose 74 cents, or 5.9%, to $13.30.

Overseas markets were mixed, with London's FTSE 100 adding 0.7% to 5383 while Germany's Xetra DAX was off 0.1% at 4906. In Asia, Japan's Nikkei rose 1.2% overnight to 12,987, while Hong Kong's Hang Seng lost 0.3% to 15,041.