Late sell-off erases gains

Stocks ended a turbulent second quarter with a moderate decline Friday as money managers, doing some last-minute adjustments, locked in gains from Thursday’s big rally.

Analysts attributed the selloff to end-of-quarter “window dressing” by managers preparing quarterly reports and the annual reconstitution of the Russell 3000 index, in which some stocks were added to the index while others were dropped.

“This was nothing attributed to market conditions,” said Ryan Larson, senior equity trader at Voyageur Asset Management.

The Dow Jones industrial average closed down 40.58, or 0.36, to 11,150.22. On Thursday, the Dow surged 217.24, its biggest single-day jump since March 21, 2003, when it added 235.37.

Broader stock indicators also fell. The Standard & Poor’s 500 index dropped 2.67, or 0.21 percent, to 1,270.20, after Thursday’s gain of 26.87, its largest point gain since March 17, 2003.

The Nasdaq composite index fell 2.29, or 0.11 percent, to 2,172.09 after rising 62.54, its largest point gain since July 27, 2002.

Markets rallied Thursday after the Federal Reserve raise rates by a quarter of a percent and seemingly moderated its interest rate policy statement. But the Fed has still promised to keep a close eye on economic data.

“You still have a ‘show-me’ type market,” said Bryan Piskorowski, market analyst at Wachovia Securities. “We’re not out of the woods yet. Clearly, we’re living number to number from here on out.”

The day’s economic data was, on balance, positive for stocks. The government said inflation, as measured by a price gauge tied to consumer spending, rose by 0.4 percent in May and was up 0.2 percent when energy and food prices are excluded. This measure of core inflation is up 2.1 percent when compared to May 2005, slightly above the Fed’s upper bounds for core inflation of 2 percent.

The University of Michigan’s June consumer sentiment reading came in better than expected, but the government reported consumer spending slowed sharply in May as rising gasoline prices left Americans with less to spend on other items. The Commerce Department said spending rose by just 0.4 percent last month after a 0.7 percent gain in April. Income growth also slowed to an advance of just 0.4 percent last month, reflecting weaker job growth.

Bonds rose, with the yield on the 10-year Treasury at 5.14 percent, down from 5.20 percent Thursday. The U.S. dollar was mixed against other major currencies. Gold prices were higher.

Crude oil futures rose. A barrel of light crude settled at $73.93, up 41 cents, in trading on the New York Mercantile Exchange.

The Dow ended the quarter up 40.90 points, or 0.37 percent; the S&P lost 24.63 points, or 1.90 percent; and the Nasdaq lost 167.70 points or 7.17 percent.

For the month of June, the Dow gained 299.31, or 2.38 percent; the S&P eked out a gain of 0.11 points, or 0.01 percent and the Nasdaq lost 6.79 points, or 0.31 percent.

The Dow remains up 432.72 points, or 4.04 percent, for the year to date; the S&P is up 21.91, or 1.76 percent and the Nasdaq is down 33.23, or 1.51 percent.

Volume was 3.18 billion shares, up from 2.79 billion shares Thursday.

The Russell 2000 index of smaller companies rose by 10.21 points, or 1.43 percent, to 724.53.

Overseas, Japan’s Nikkei stock average rose 2.54 percent. Britain’s FTSE 100 rose 0.72 percent, Germany’s DAX index rose 1.82 percent, and France’s CAC-40 gained 1.75 percent.