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Stocks pare losses as consumer sentiment climbs

Fri., June 11, 2010, 7:26 a.m.

NEW YORK — Stocks traded in a narrow range today after a report showed consumers are gaining confidence in the economy, even if they aren’t returning to stores.

Stocks erased much of their early losses after the Reuters/University of Michigan consumer sentiment index said confidence grew to its highest level since January 2008 and came in well ahead of forecasts.

The jump in confidence was an encouraging sign, but still doesn’t signal the all-clear for the economy, said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn.

“We recovered some lost ground, but there is still some ways to go,” Sheldon said. That was evident in the disappointing retail sales report, which initially sent stocks sharply lower at the open.

The Commerce Department said retail sales fell 1.2 percent in May. It was the first drop in sales in eight months and was well short of forecasts. Economists predicted the pace of growth would slow between April and May, but still rise 0.4 percent.

Companies that sell consumer staples like Proctor & Gamble Co., which makes Tide detergent and Gillette razors, dropped after the disappointing sales report. Retailers like J.C.Penney Co. and Macy’s Inc. also dipped on the news.

The mixed reports come a day after stocks surged on upbeat global economic data. The back-and-forth movements fit into the trend of extreme volatility that has been seen in recent weeks. The Dow Jones industrial average has had only one two-day winning streak since late April, and that included a day where it rose just 6 points.

The Dow was down 26 points in afternoon trading Friday after falling nearly 90 points early in the day. It had climbed 279 points Thursday after reports showed the global economy is healing, despite persistent worries over Europe’s sovereign debt crisis.

“The market is nervous,” said Joe Heider, principal at Rehmann Financial in Cleveland. “The economic recovery is not robust at this point and it gives pause to the market.”

The retail sales report marks the second straight Friday that stocks hesitated after weak domestic economic news. Investors were looking for the sales data to provide reassurances about the nation’s health a week after a disappointing employment report.

In afternoon trading, the Dow fell 26.00, or 0.3 percent, to 10,146.38. The Standard & Poor’s 500 index fell 2.52, or 0.2 percent, to 1,084.32, while the technology-heavy Nasdaq composite index rose 2.93, or 0.2 percent, to 2,226.21.

The tech sector got a boost after handset maker Motorola Inc. settled a patent complaint with Research In Motion Ltd.

About the same amount of stocks rose and fell on the New York Stock Exchange, where volume came to 385.2 million shares.

Today’s reports follow a trend over the past month showing an uneven recovery, which has added concern to a market already struggling with worries about the health of Europe’s economy. The Dow has mostly fallen since late April as investors worry about whether debt problems and steep government spending cuts in countries like Greece, Spain, Portugal and Hungary will slow down Europe’s economy so much that the economic slump would spread around the globe.

The euro’s level against other currencies has become a key indicator of confidence in European governments’ ability to resolve their fiscal problems. The currency, which is used by 16 countries, fell to $1.2057.

Analysts say retail investors, in particular, are still nervous about the market and economy, and are sitting on the sidelines. That leaves institutional investors as the main players in the stock market, which explains why volatility has been so high.

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