Stocks Erase Losses As Consumer Sentiment Climbs

Stocks traded in a narrow range Friday 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. The index jumped to 75.5, much better than the 74.5 forecast by economists polled by Thomson Reuters.

Major indexes had been lower to start the day after an unexpected drop in retail sales.

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. The drop in sales was widespread.

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 6 points Friday morning after falling more than 70 at the open. It had climbed 279 points Thursday after reports showed the global economy is healing, despite persistent worries over Europe’s sovereign debt crisis.

The retail sales report marks the second straight Friday that stocks retreated 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 morning trading, the Dow fell 5.90, or 0.1 percent, to 10,167.01. The Standard & Poor’s 500 index rose 0.82, or 0.1 percent, to 1,087.66, while the Nasdaq composite index rose 11.09, or 0.5 percent, to 2,229.80.

About two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 184.5 million shares.

A third report showed business inventories rose 0.4 percent in April. That fell just short of the 0.5 percent growth economists had predicted. Rising inventories could be a sign business owners are also gaining confidence in the economy. Inventories usually only jump when businesses expect consumers will return to stores.

Friday’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 slightly to $1.2120.

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.

Institutional traders’ “sense of long-term holding is in minutes,” said Bob Tull, chief operating officer of Old Mutual Global Index Trackers. The quick trades and constant movement of professional money managers means stocks are bound to gyrate more than if there is a steady flow of cash from retail investors heading into the market.

U.S. Treasury prices rose as investors sought safety. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.27 percent from 3.33 percent late Thursday.

The Russell 2000 index of smaller companies rose 5.60, or 0.9 percent, to 645.39.

Overseas, Britain’s FTSE 100 fell less than 0.1 percent, Germany’s DAX index fell 0.9 percent, and France’s CAC-40 rose 0.6 percent. Japan’s Nikkei stock average rose 1.7 percent.