Updated from 4:07 p.m. EST

Stocks in the U.S. closed lower after a volatile session Friday as heavy losses in several insurance names derailed an early attempt to stop a three-day slide.

The Dow Jones Industrial Average traded in a range of 300 points and finished down 59.91, or 0.49%, at 12,099.30. The S&P 500 was also negative, falling 8.06 points, or 0.6%, at 1325.19. The Nasdaq Composite lost 6.88 points, or 0.29%, to 2340.02.

The broad market had opened sharply higher in a bid to stem a three-session selloff, but the rally was short-lived. Overall, the major averages had another dismal performance for the week. The Dow declined by 4%, and the Nasdaq retreated 4.1%. The S&P 500 was the worst performer, ending down 5.4% over the five sessions.

"Psychology is deteriorating quickly," said Paul Mendelsohn, chief investment officer with Windham Financial. "The fear is taking over, and we're entering a panic stage here, which may mean we're getting closer and closer to the end of the decline."

Volume was strong while breadth was negative. On the New York Stock Exchange 5.92 billion shares changed hands, as decliners topped advancers by a 7-to-4 margin. Volume on the Nasdaq reached 2.94 billion shares, with losers beating winners 2 to 1.

Bond insurers were among the biggest losers weighing on the market. MBIA ( MBI) dropped 7.3% to $8.55 after Bank of America downgraded the stock to neutral from buy. Late Thursday, Moody's disclosed that's MBIA's ratings are on review for downgrade.

Meanwhile, Fitch cut its rating for insurer Ambac ( ABK) to AA from AAA. Shares finished with a loss of 4 cents, or 0.6%, at $6.20.

"These stocks have come down so much," said Mendelsohn. "As long as they don't go bankrupt, they may be undervalued at these levels. Some aggressive investors or bottom-fishers could come in here, as they've been totally destroyed."

BofA cut Ambac and Security Capital Assurance ( SCA) to neutral from buy. Citigroup downgraded Ambac and MBIA to hold from buy.

Among broadline insurers, AIG ( AIG) lost 4.1%, Allianz SE ( AZ) fell 4.7%, and AXA ( AXA) declined 2.2%.

Several financial subsector indices also showed early strength before sinking. The Nasdaq Financial 100 Index was down 1.1%, the NYSE Financial Sector Index eased 1.1%, and the Amex Securities Broker/Dealer Index slid 0.8%.

"We're seeing the end-phase of a five-year bull in the form of this schizophrenic market," said Paul Nolte, director of investments with Hinsdale Associates. "We're seeing a persistently weaker market. The early rally didn't have any meat to it, and there wasn't much in the way of supporting it."

"Nine of the 11 days so far this year have seen 100-point swings on the Dow, so volatility is the norm now," said Art Hogan, chief market analyst with Jefferies.

The upbeat start for stocks came on positive news early from General Electric ( GE), which posted a fourth-quarter profit from continuing operations that rose 15% from a year ago and met expectations. GE also repeated its full-year guidance, and shares finished up $1.10, or 3.3%, to $34.31.

Fellow Dow component IBM ( IBM) said after the last close that it had fourth-quarter earnings that easily beat forecast. IBM's report came as no surprise, as the company offered preliminary figures Monday that were well above estimates.

Additionally, IBM offered a full-year forecast that was well above the Thomson First Call average estimate. IBM advanced $2.30, or 2.3%, to $103.40.

Also late Thursday, Advanced Micro Devices ( AMD) surprised investors by posting a narrower-than-expected quarterly loss, although the company had a writedown of $1.7 billion tied to the acquisition of graphics chipmaker ATI Technologies. AMD shares surged 11.5% to close at $7.07.

For oil-services company Schlumberger ( SLB), earnings for the final three months of the year increased 22%, but fell just short of the consensus estimate. Shares slid $2.99, or 3.6%, to $79.52.

Washington Mutual ( WM) swung to a fourth-quarter loss of $1.87 billion and missed forecasts. WaMu said it had a $1.6 billion writedown due to mortgage losses. Still, shares climbed 8.8% to $13.55.

Elsewhere in ratings, Morgan Stanley dropped Fannie Mae ( FNM) to underweight from equal-weight, and Citi reduced both Medco ( MHS) and Express Scripts ( ESRX) to hold from buy. All three finished the session in the red.

On the upside, Oppenheimer lifted its rating on Research in Motion ( RIMM) to outperform. RIM rose $1.55, or 1.8%, to $88.58.

Away from corporate news, President Bush announced the outline of a $145 billion fiscal stimulus plan he hopes will be enacted swiftly in order to keep the economy from entering a recession.

Traders also absorbed a smattering of economic releases. The University of Michigan said its consumer sentiment index unexpectedly rose to a preliminary 80.5 in January, the highest reading since October. Economists expected the index to shrink to 74.5 from 75.5 last month.

"The survey reports significant gains in both expectations and consumers' view of the current economy," said Ian Shepherdson, chief economist with High Frequency Economics. However, Shepherdson warned that the figures are "very hard to square with the mostly awful economic data, and it cannot last."

The Conference Board said that leading economic indicators slipped 0.2% in December, after a 0.4% decline in November. The data matched forecasts.

Commodity futures were slightly higher. Oil ended up 44 cents at $90.57 a barrel. Gold was up $4.40 to $884.90 an ounce.

U.S. Treasury prices were slipping. The 10-year note fell 2/32 in price, yielding 3.63%. The 30-year bond was off 15/32 in price, yielding 4.28%. The dollar was rising against the world's major currencies.

Overseas markets were mostly higher. Overnight in Asia, Japan's Nikkei 225 rose 0.6% and Hong Kong's Hang Seng gained 0.4%. Among European bourses, London's FTSE 100 climbed 0.1%, and Germany's Xetra Dax was lower by 1.3%.

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