NEW YORK (Reuters) - U.S. stocks fell on Friday after weak U.S. housing and consumer confidence reports added to growing worries about a widening slowdown, while oil prices rose on growing expectations OPEC will cut crude supplies.
Trading was volatile on Wall Street and other financial markets as a wave of forced selling pushed security prices wildly up and down in what has become a daily occurrence.
The U.S. dollar rebounded against the yen in signs of greater risk appetite but gold dropped after the dollar rally triggered heavy liquidations by commodity funds.
The Dow capped its best weekly gain in five years and the broader S&P 500 had its best week since February after a disastrous three weeks that had knocked U.S. stocks deeply into bear territory.
Oil jumped 2.9 percent, spurred by a broader rise across many financial markets and expectations that the Organization of Petroleum Exporting Countries could cut output at an emergency meeting next week.
U.S. crude settled up $2 to $71.85 a barrel, while London Brent crude gained $1.76 to settle at $69.60 a barrel.
The rise in oil prices pushed energy shares in Europe sharply higher, driving up markets across the continent.
U.S. stocks had risen solidly earlier on reassuring results by technology leaders Google and IBM, as well as bargain-hunting.
But a growing fear of recession loomed over investors on reports that showed U.S. consumer sentiment suffered its steepest monthly drop on record in October and housing construction starts fell to a 17-1/2-year low last month.
Given the number of signs that the global economy was headed into a potentially deep recession, investors remained cautious.
"Sentiment remains fragile," said Sudakshina Unnikrishnan, analyst at Barclays Capital. "The macroeconomic uncertainty and recession fears coupled with volatility in the financial markets means any sort of recovery we see in prices could be viewed as temporary," she said.
There were more advancing shares than declining shares on the New York Stock Exchange, but among the 25 most active decliners outnumbered advancing stocks by 2 to 1.
Wall Street turned lower in late trade after a roller-coaster session. Analysts said options expirations could have increased stock market volatility on Friday.
"There is not a whole lot of depth and liquidity in the market. That is what is causing these wild intraday swings in the stock benchmarks," said Thomas Haugh, chief investment officer of brokerage and money manager PTI Securities and Futures in Chicago, who said he doubts the options expiration is a factor in these wild swings.
The Dow Jones industrial average .DJI closed down 127.04 points, or 1.41 percent, at 8,852.22. The Standard & Poor's 500 Index .SPX slipped 5.88 points, or 0.62 percent, at 940.55. The Nasdaq Composite Index .IXIC shed 6.42 points, or 0.37 percent, at 1,711.29.
A number of companies warned of quickly slowing economic growth.
Schlumberger Ltd (SLB.N: Quote, Profile, Research, Stock Buzz), the world's largest oilfield services company, warned that the credit crisis and softening global economy could trim spending expectations in the oil and gas industry next year. Its shares fell 5.6 percent.
Honeywell International Inc (HON.N: Quote, Profile, Research, Stock Buzz) cut its fourth-quarter profit forecast below Wall Street's expectations and said it is bracing for "recessionary conditions" in the United States and Europe next year, sending its shares down 6 percent.
In Europe shares gained 4.2 percent, ending a volatile week on a strong note thanks to energy stocks that tracked a recovery in crude, while drugmakers rose ahead of key company reports next week.
"What helps is that we've ended the week in the same way it started, on an upbeat note," said Mike Lenhoff, chief strategist at Brewin Dolphin.
The pan-European FTSEurofirst 300 finished the week 6.3 percent higher.
The FTSEurofirst 300 index of top European shares closed up 4.2 percent at 894.77 points. The index has lost 39.9 percent this year on recession worries and the effects of banking failures.
"This is the most volatile week we've seen," said Thierry Lacraz, strategist at Swiss bank Pictet in Geneva. "The sole intelligent thing is to remain on the sidelines and not make any huge bets."
U.S. government debt wavered as rising stocks tempered the flight to safety.
"Along with everyone else, the eyes of Treasuries investors are glued to what's going on in the stock market," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi. "When stocks go up, the bid for Treasuries goes down. When stocks go down, the bid for Treasuries comes back."
Investors moved money into U.S. government debt in the late stock market sell-off, but signs of more credit supply pared the safe-haven appeal of ultra-short debt.
The benchmark 10-year U.S. Treasury note rose 10/32 in price to yield 3.93 percent, while the 2-year U.S. Treasury note was unchanged in price to yield 1.62 percent.
The dollar rose against a basket of major currencies, with the U.S. Dollar Index .DXY up 0.21 percent at 82.458.
The euro fell 0.45 percent at $1.3424, and against the yen, the dollar fell 0.24 percent at 101.36.
Gold dropped 2 percent, concluding a volatile week of selling, as a lack of confidence in the financial system and a dollar rally triggered heavy liquidation by commodity funds.
Gold's status as a hedge against inflation was also weakened as investors fretted that a recession could not be avoided amid a deepening financial crisis.
Gold bullion fetched $785.80 an ounce at 2:23 p.m. EDT (1823 GMT), down 2.3 percent from Thursday's close of $804.50. Earlier it touched $771.30, the lowest since September 15.
(Reporting by Ellis Mnyandu, Steven C. Johnson, Ellen Freilich in New York and Joe Brock, Ian Chua, Tyler Sitte and Jan Harvey in London; Writing by Herbert Lash; Editing by Leslie Adler)
