Traders stepped back Friday and looked for signs that the stock market’s two-week surge could continue. Stocks fluctuated in a narrow range as traders hoped to cap what would be the first back-to-back weekly gains for stocks in close to a year. The quiet moves Friday weren’t unexpected given the double-digit gains stocks have logged since only last week. In less vexing times, investors might see advances of that size over the course of a year. Investors showed little reaction to Federal Reserve Chairman Ben Bernanke’s call Friday for banking supervisors to pay “close attention” to compensation practices as they examine the soundness of financial institutions. In early afternoon trading, the Dow industrials fell 27 points to 7,373.88. Broader stock indicators traded in a narrow range. The Standard & Poor’s 500 index fell 0.90, or 0.1 percent, to 783.14, and the Nasdaq composite index slipped 1.61, or 0.1 percent, to 1,481.87. Part of Friday’s relative calm could be tied to a mix of exhaustion and caution among traders. The Fed jolted the market this week by announcing plans to buy Treasury securities to revive lending and the economy. Stocks initially jumped on the move but fell Thursday on worries about inflation. Other markets showed big moves during the week: In just two days, the dollar fell 5 percent versus the euro and 3 percent versus the yen. Oil prices, meanwhile, soared 7 percent Thursday above $51 a barrel to the highest level this year. Many analysts believe stocks were due for a pullback after the Dow Jones industrial average rose more than 14 percent over seven trading days. But considering how much the market has rallied, it appears to be holding up well. The Dow is on pace for its first two-week run of gains since the period ended May 2, 2008. Since a batch of troubled banks told investors they were profitable in January and February nearly two weeks ago, the stock market bounced off its 12-year lows. Even after Thursday’s retreat, the Dow was still up 13 percent from its lows, and the S&P 500 index was up nearly 16 percent. The question on Wall Street is whether there will be enough good news in the coming days to keep stocks rising. Michael Binger, portfolio manager at Thrivent Investment Management in Minneapolis, said the government efforts around the world to fan economic growth and boost lending will eventually take hold and that the market is signaling that the economy is hitting bottom. He contends that it shouldn’t be too difficult for stocks to keep moving higher because expectations have fallen so low. “I think the stock market is saying that fourth quarter of 2008 and first quarter of 2009 may be the trough in negative news,” he said. Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to a heavy 1.09 billion shares. Meanwhile, bank stocks slumped Friday as investors, mindful of the problems that lie ahead for the industry, took profits following a near two-week rally. The KBW Bank Index, which tracks 24 of the largest US banks, tumbled 9 percent to 27.40 in afternoon trading. Among the biggest decliners were Bank of America Corp., which dropped 77 cents, or 11.3 percent, to $6.16, and Wells Fargo & Co., which fell $1.27, or 8 percent, to $14.15. Financial stocks largely led the broad market rally that began last week, sparked by Citigroup Inc.’s assertion that it had been operating at a profit in the first two months of this year. While many investors grew hopeful that banks’ first-quarter performance would be better than expected, many concerns remain. Many analysts warn that the recent rally in bank stocks doesn’t mean the industry’s problems are over. “We believe the outlook for bank stocks is finally improving but that the industry has a long road ahead to recovery and the current rally should prove to be short-lived,” wrote Boenning & Scattergood analyst Jason O’Donnell in a research note Thursday. Investors are still awaiting more details from the government on how it will implement a proposal to remove toxic assets from banks’ books. At the same time, the government is conducting stress tests of the nation’s largest banks to determine how they would fare if economic conditions worsened. The results aren’t expected until the end of next month. Meanwhile, an accounting board is expected to recommend ways to easy financial reporting rules of tough-to-sell assets, a potential positive for banks that say a change in so-called “mark-to-market” accounting rules would help their bottom lines. Analysts expect loan losses to continue to accelerate as the economy remains under pressure. “As the March quarter draws to a close, nothing on the macroeconomic front suggests the deterioration in bank asset quality, under way in earnest since the first quarter of 2007, has slowed,” wrote Stifel Nicolaus & Co. analyst Anthony Davis in a recent note to clients. “We believe loan losses will remain historically elevated through year-end and also will become more pervasive across loan segments.” Bank stocks soared earlier this week after the Fed announced plans to pump more than $1 trillion into the financial system by buying up Treasury bonds and mortgage-backed securities. While the moves were initially cheered by investors, many are starting to question just how effective the measures will be to prop up the financial system and get banks lending again. Citigroup fell 12 cents to $2.48 after rising earlier as it announced management changes. The troubled banking giant named Gary Crittenden, who has been chief financial officer, as chairman of Citi Holdings — the portion of Citigroup that holds the bank’s riskiest assets. Edward Kelly, the former head of global banking for Citi Private Bank, will assume the role of CFO. Other decliners included JPMorgan Chase & Co., which lost $1.34, or 5.4 percent, to $23.61, and PNC Financial Services Group Inc., which shed $1.60, or 5.6 percent, to $27.07. Europe European shares closed higher on Friday as Bayer gained after it received a green light for a drug, while telecommunication makers fell as Sony Ericsson gave a bearish outlook. The pan-European FTSEurofirst 300 index of top shares closed 0.4 percent higher at 717.88 points in a choppy session with stocks rising to as high as 719.25 points and falling to as low as 704.84 points. “The market is see-sawing today. What we have seen here is investors downsizing their positions taking half of their profits out, but still leaving some positions in,” said Joshua Raymond, market strategist at City Index. “Investors are still fairly confident that the market could go higher, but yet again they do not want to take the risk in case the market turns ... there are still concerns about bank liquidity and return on investment,” added Raymond. Bayer jumped 11.3 percent after the group received a green light for it’s key new drug Xarelto from a US panel, putting it on track to win approval in its largest market. “The positive outcome is critical for sentiment and we expect Bayer to regain some of the multiple that it lost prior to the advisory committee,” analysts at Morgan Stanley said in a research note. Energy stocks were major gainers as crude held above $51 a barrel a day after surging 7 percent following the Federal Reserve’s plan to pump another $1 trillion into the recession-hit economy. BG Group, BP, Tullow Oil and Premier Oil were 0.2-6.7 percent higher. Miners rose as copper gained 0.4 percent. Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation, Rio Tinto and Xstrata were up 1.5-5.9 percent. Telecom equipment makers fell after Sony Ericsson sparked fresh fear of crumbling consumer demand after the world’s No 4 handset maker said it would sell barely half of the phones it sold last quarter. Ericsson lost 9.8 percent and Nokia was down 6.2 percent. “We see this as a negative leading indicator for the Q1 reporting season in the handset market,” said Thomas Langer, analyst at WestLB in a note. Banking stocks were in the doldrums as investors took profits following gains on Thursday. HSBC, Nordea Bank, Barclays and BNP Paribas were down 2.3-6.7 percent. Euro zone industrial output staged a new record plunge in January, pointing to a further sharp contraction in the economy this year and boosting pressure for further deep European Central Bank rate cuts and quantitative easing. “The outcome ... strengthens our view that Q1 will be even worse than Q4. With global demand still at very depressed levels, companies are reluctant to resume production plans even though inventories are judged less heavy than at end-2008,” UniCredit said in a note. Across Europe, the FTSE 100 index was up 0.7 percent, Germany’s DAX was up 0.6 percent and France’s CAC 40 was 0.5 percent higher. Asia Asian stock markets were mixed Friday as investors turned cautious amid worries the US Federal Reserve’s latest move to combat recession in the world’s largest economy will lead to rampant inflation. Trade was lackluster in most markets, with Tokyo closed for a holiday, as the region closed out one of its strongest weeks this year with a whimper. Sentiment took a hit after Wall Street’s rally petered out Thursday. US investor euphoria over the central bank’s aggressive $1.2 trillion plan to buy government bonds and debt securities gave way to fears the new spending could water down the dollar’s worth and lead to higher prices across the board. Those concerns have pummeled the dollar, which stabilized in Asia but was still headed for a 4 percent loss against the yen this week. A weaker dollar is especially unnerving in Asia, where it hurts big exporters in Japan and other countries by eroding foreign income. While the market may see more upside, analysts were doubtful the current rally could be sustained much longer with continuing woes in the financial system and the global outlook still grim. “I don’t think anyone reasonably expects this to be a long-term rally or that we’ve hit bottom,” said Andrew Orchard, Asian strategist for Royal Bank of Scotland in Hong Kong. “The problems with the financial system are still unknown.” Hong Kong’s Hang Seng led Asia’s declines, falling 297.41 points, or 2.3 percent, to 12,833.51, and Australia’s benchmark S&P/ASX 200 stock index lost 0.4 percent to 3,465.8. Taiwan’s benchmark sagged 1.5 percent. Stocks in mainland China rose for a fifth day, with the Shanghai Composite advancing 0.7 percent to 2,281.09. South Korea’s Kospi climbed 0.8 percent to 1,171.04. Trading will reopen in Tokyo on Monday. Markets in the Philippines and Thailand also rose. Among the worst performers were financial shares after recovering in recent days, with Australian investment Macquarie Group dropping 4.5 percent. In Hong Kong, China Mobile, the world’s largest carrier by subscribers, dropped 5.4 percent after its results showed slower growth. Oil Oil prices leveled off Friday after the effects of OPEC production cuts and a massive US government buying spree led to a weeklong rally. Benchmark crude for April delivery fell 55 cents to settle at $51.06 a barrel in light trading on the New York Mercantile Exchange. The April contract expires Friday and traders shifted their attention to the May contract, which rose 3 cents to settle at $52.07. London Brent rose 15 cents to $50.82. It was the first time crude has ended the week above $50 since last year. “It really seems like the market is taking a breather after a wild week,” said Mike Zarembski, senior commodity analyst at brokerage OptionsXpress Inc. Oil prices rose 11 percent over the week. Prices spiked after the US Federal Reserve announced plans Wednesday to buy $1.25 trillion of government bonds and mortgage-backed securities. Investors pumped money into commodities like oil as the dollar went into a tailspin. Also this week, for the first time in months, supply concerns came to the forefront as researchers that monitor seagoing oil tankers said traffic had dropped considerably. Investors since late last summer have brushed off OPEC’s plan to slash crude production, focusing instead on the global recession and a massive surplus of crude in US inventories. But six months after OPEC members agreed to tighten their spigots, analysts said the group has started to balance a plunge in global consumption with supply. Most analysts believe the Organization of Petroleum Exporting Countries has cut about 80 percent of the 4.2 million barrels of crude per day that it promised last year. OPEC ministors said Sunday they would push even harder to make all member states comply with quotas. Crude prices rose again on Friday as traders learned that two US Navy vessels collided in the Strait of Hormuz between Oman and Iran, a crucial passageway for supertankers. The collision would not block the waterway, but any incident in that area can spook markets. The US Navy’s 5th Fleet said the collision occurred between the USS Hartford, a submarine, and the USS New Orleans. Fifteen soldiers aboard the Hartford were slightly injured but able to return to duty. “Whenever we see something going on in that area, we always see an uptick in prices,” said Addison Armstrong, director of market research at Tradition Energy. “It’s a very narrow area. It’s choked with ships. And it’s in a volatile region.” About 17 million barrels of oil moved through the narrow straight in the first half of last year, roughly 40 percent of the crude that’s traded at sea, according to the Energy Information Administration. At its narrowest, the strait measures 21 miles (33.5 kms) across and forms a bottleneck for ships trying to get in and out of the Arabian Gulf. Currencies The dollar recovered Friday as investors took profits on the rising euro but analysts said the US unit was still vulnerable after a US move to pump more than a trillion dollars into the financial system. “The policy of quantitative easing currently pursued by the Fed confirms the dollar bears (sellers) in their view that long term, the US will be facing considerable inflation pressures,” Commerzbank analysts wrote. “Over the coming weeks the dollar is likely to suffer because of this market view,” giving the euro “short term scope to rise well above 1.40” dollars. In late London trade, the euro fell to 1.3573 dollars from 1.3660 dollars in New York late Thursday. Against the Japanese currency, the dollar rose to 96.10 yen from 94.55 yen on Thursday. Markets in Tokyo were closed for a public holiday. The euro had risen against the dollar earlier Friday even as data showed factories and refineries in the 16 countries using the single currency ratcheted down production at the fastest pace on record in January. Industrial output in the recession-hit eurozone slumped 3.5 percent in January from December and dropped 17.3 percent over 12 months. Economists had forecast that production would fall 4.0 percent over one month and 15.5 percent over one year. In London trade on Friday, the euro was changing hands at $1.3573 against $1.3660 late on Thursday, at 129.98 yen (129.17), 0.9380 pounds (0.9418) and 1.5265 Swiss francs (1.5354). The dollar stood at 96.10 yen (94.55) and 1.1257 Swiss francs (1.1239). The pound was at $1.4418 (1.4496).

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