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Save for Wednesday's show of strength, this week was a struggle for equities amid an ongoing re-evaluation of the economy's momentum and yet more revelations in the widening mutual fund trading scandal. As major stock proxies suffered modest declines, Treasuries rallied sharply this week, the dollar tumbled anew, and gold prices soared to a seven-year high.

For the week, the

Dow Jones Industrial Average

fell 0.4%, the

S&P 500

shed 0.3%, and the

Nasdaq Composite

slid 2%. Wednesday was the only up session of the week, but it was big enough to put major averages within earshot of multimonth highs established on Nov. 3 by the Dow and S&P and on Nov. 6 by the Comp.

The S&P actually exceeded its recent cycle high of 1062.39 early Friday, but the gains proved fleeting, and the index ended down 0.8% at 1050.35. Similarly, the Dow closed down 0.7% to 9768.68 after trading as high as 9892.97, while the Comp declined 1.9% to 1930.26 vs. its early best of 1977.80.

Friday's outside reversal for major averages -- a session characterized by a higher high and lower low than the previous session -- will further encourage those who are

attempting to call a top.

Friday's declines followed a string of disappointing economic reports, including a 0.3% drop in October retail sales and a weaker-than-expected 0.2% rise in industrial production. Capacity utilization rose to 75% from 74.7%, in line with expectations. Also, the producer price index rose by 0.8% in October, four times the consensus expectation. The core rate rose 0.5%, also well ahead of expectations of a 0.1% rise. Those reports overshadowed stronger-than-expected results in the University of Michigan's preliminary consumer confidence report for November.

Other data this week included a higher-than-expected rise in weekly jobless claims and a wider-than-expected report on the September trade deficit.

Against that backdrop, and despite the government's auction of some $58 billion of bills and notes, Treasury prices rallied sharply this week. The yield on the benchmark 10-year note, which moves in opposition to its price, fell 23 basis points this week to 4.22%.

The Treasury rally was fueled in part by more comments from

Federal Reserve

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officials downplaying the possibility of rate hikes anytime soon, despite the higher-than-expected PPI data and rising commodity prices. Gold prices surged 3.8% this week, ending Friday at $398 an ounce, their highest level since February 1996. Similarly, the Bridge/CRB Commodities Index this week hit its highest level since May 1996.

Commodities rallied as the dollar suffered its worst week vs. the euro in six months. The euro jumped to $1.1778 late Friday from $1.1532 a week prior, while the dollar fell to 108.335 yen from 109.375. For the week, the dollar index fell 1.7%.

Fed Stands Pat

Despite such signs of potential (and actual) inflationary pressures, St. Louis Fed President William Poole said Thursday that the Fed may be able to keep rates low "well beyond March." On Friday, Philadelphia Fed President Anthony Santomero said "any policy adjustment need not take place in the near future."

Separately on Thursday, Chicago Fed President Michael Moskow reflected on how the so-called output gap between the nation's actual production and its potential has contributed to still-weak labor markets and a lack of pricing power for many industries. From this perspective, capacity utilization of 75% and a 6% unemployment rate justify the Fed forgoing tightening for a "considerable period," given still-low core inflation measures.

The combination of lackluster economic data and the Fed's lack of urgency to tighten helped Treasuries rally, something usually associated with weakening, not strengthening economic growth. Disappointing earnings and/or guidance from retailers

Wal-Mart

(WMT) - Get Walmart Inc. Report

,

Target

(TGT) - Get Target Corporation Report

and

Kohl's

(KSS) - Get Kohl's Corporation Report

raised further questions about the recovery's path.

Notably, pharmaceutical names such as

Pfizer

(PFE) - Get Pfizer Inc. Report

were among the week's strongest performers; again, strength in such classic defensive plays is not consistent with robust economic growth.

Weak money supply growth also continues to raise concerns about the economy's future. For the two months ended October, M2 contracted at an annualized rate of 4.93% in contrast to annualized growth of 14.81% for the two months ended June 30.

Some economists attribute contracting money supply to outflows from money market funds, as reported

here. But Paul Kasriel, chief economist at Northern Trust in Chicago, believes the real culprit is a slowdown in bank credit growth, which he attributed to the "sharp slowdown in mortgage activity resulting from the backup in mortgage interest rates."

The Mortgage Banker Association's Mortgage Application Index fell 8.6% last week, with the new purchase index down 7.1% and the refinance component off 10.1%; refinance activity is down some 70% from its May peak.

This week's decline in Treasury yields should help reverse the trend, and Kasriel also expects continued demand for credit from the government. Speculators borrowing at low short-term rates and reinvesting in longer-term maturities or foreign currencies with higher yields "will

also lead to faster bank credit and money growth,

and this is what I expect," he wrote. "But if M2 growth does not pick up soon, then I may have to revise down my 2004 GDP forecast."

Meanwhile, the Blue Chip Economic Indicator poll showed respondents raising expectations for 2004 growth this week to 4.2%, from 3.9% a month ago. On some level, the concerns cited above may prove short-term in nature and reflect Wall Street's impatience for any slowing in the economy's recent torrid pace.

Indeed, good news -- such as solid earnings from tech bellwethers

Applied Materials

(AMAT) - Get Applied Materials, Inc. Report

and

Dell

(DELL) - Get Dell Technologies Inc Class C Report

-- once more proved insufficient to push stock proxies higher after their extensive rally. Conversely, the market has little room for error or disappointment.

Disappointment bordering on disgust is a fair assessment of the reaction to the broadening scope of investigations into the mutual fund trading scandal. This week, top executives at Alliance Capital were forced out, while Pilgrim Baxter's founders resigned amid separate revelations of illicit market-timing at those firms. Putnam Investments reached a tentative settlement with the

Securities and Exchange Commission

but still faces civil charges and ongoing investigations by the attorneys general of New York and Massachusetts. Elsewhere, Charles Schwab, Legg Mason and American Express have also come under scrutiny for potential late-trading activities.

Despite large outflows from fund families such as Putnam and Alliance Capital, equity mutual funds enjoyed inflows of $3.5 billion for the week ended Nov. 12, according to AMG Data. Unless investors start taking assets out of mutual funds en masse, rather than just shifting monies from one fund family to another, the stock market is unlikely to suffer major disruption.

Then again, the burgeoning scandal is yet one more obstacle the equity market struggled to surmount this week.

Tune-In TaskMaster

I'll be discussing these and related issues on WABC radio's "Batchelor & Alexander" show Friday night/Saturday morning, around 9:30 p.m. PST/12:30 a.m. EST. The show is nationally syndicated, so check www.wabcradio.com for local listings or Webcast options.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.