Stocks Slip; Traders Play Defense

Stocks closed out a volatile week slightly lower on Friday as a late sell-off for financials offset strong buying in defensive stocks.

The Dow Jones Industrial Average slid 14.81 points, or 0.2%, to 8277.32 after American Express and Bank of America declined by 3% each. For the week, the blue-chip average gained 0.1%, its third advance in four weeks.

The Standard & Poor's 500-stock index slipped 1.33, or 0.2%, to 887.00. It was hurt by a 0.7% decline in its financial sector. The consumer-staples and utilities sectors fared best, rising 0.6% and 0.8%, respectively. Consumer-discretionary stocks also gained after some retailers posted better-than-expected earnings.

The broad market gauge rose 0.5% on the week.

Traders noted activity was sparse ahead of the Memorial Day holiday weekend. After an erratic close Thursday that saw the Dow drift nearly 100 points in the last 30 minutes, trading was more sector rotation than broad buying or selling.

"People want to go home flat if at all possible," said Marc Pado, U.S. market strategist for Cantor Fitzgerald, who noted trading appeared to hint at a little short-covering in a few of the sectors that have fallen this week and a little profit taking in what has held up.

All U.S. financial markets will be closed Monday in observance of Memorial Day.

Stocks got off to a strong start this week after signs of life in the housing market and a bullish analyst comment on banks sent the Dow up more than 230 points on Monday. In each subsequent session, however, economic hopes have waned. S&P's warning that it may downgrade the U.K.'s AAA credit rating and the disappointing results of the latest phase of the Federal Reserve's Treasury-purchase program sent the Dow off 129 points on Thursday.

For now, the tone on the economy continues to take center stage in all trading, with little of the activity on a stock-specific basis.

"We haven't seen this high of a correlation in the market since 1987. People are just taking a one-way bet on risk where they seemingly want to be either all risky or all defensive," said Russ Koesterich, head of investment strategy for Barclays Global Investors.

The Nasdaq Composite Index declined 3.24 points, or 0.2%, to 1692.01. For the week, it rose 0.7%.

Trading ended slightly in the red just ahead of the holiday weekend. Consumers were top of mind, as several retailers reported earnings. Sears surprised some with stronger-than-expected profit that sent the stock up 11%, Dave Kansas says.

Sears Holdings paced the retail sector, gaining 10%, after it posted a surprise first-quarter profit amid cost cuts and tighter inventory controls. Gap reported a 14% profit fall, with sales in all four of its divisions falling. Its shares rose 2.6%. Teen retailer Aeropostale reported an 81% profit rise as its first-quarter results set a company record; its shares rose 3.6%.

Outside the stock market, a new wave of selling hit Treasurys, with the long end the hardest hit. The benchmark yield curve pushed to 3.455%, its steepest level since Nov. 18. Investors are girding for a hefty supply of new debt expected next week.

The dollar continued to push lower against the euro and the pound, furthering sharp declines from Thursday on worry that the U.S. could also face a threat to its credit rating. Like the U.K., the U.S. has borrowed heavily to finance its aggressive efforts to turn back the financial crisis.

The dollar hit its lowest level against the euro since Jan. 2, with the euro rising to $1.4004 from $1.3901 late Thursday. The euro has climbed more than six U.S. cents this week from its intraday low on Monday.

Oil prices finished Friday slightly higher, with gasoline eyeing a new seven-month high ahead of the holiday weekend and a fleet of motorists expected on U.S. highways. Crude-oil futures rose 62 cents, or 1.02%, to $61.67, ending with a 8.2% gain on the week. Oil has gained in three of the last four weeks and is up 21% so far this month