NEW YORK -- Stocks closed mixed yesterday as weakness in automobile, paper and a handful of oil issues countered gains in Nasdaq's Composite Index.
Still, the markets' prospects looked good after a recent rally because of renewed evidence that the economy was expanding and that corporate earnings were growing in line with forecasts.
"The GNP numbers were terrific for the third quarter," when the economy grew at an annual rate of 2.8 percent, said Gerald Perritt, president of Perritt Investments Inc. in Chicago. "I'd be surprised if the real GNP [growth] was below 4 percent in the fourth quarter, and the earnings that some of these small stocks are reporting in the third quarter have been phenomenal."
The Dow Jones industrial average slid 7.27 points, to 3,680.59, as concern about new pollution controls crushed paper stocks. The Dow gained 31.29 points for the week, after having climbed 23.20 points Thursday, to a record 3,687.86.
Advancing stocks on the New York Stock Exchange exceeded declining issues by a margin of about 3-to-2. Volume was about 270 million shares, down from 301 million shares Thursday.
The Standard & Poor's 500 Index rose 0.11, to 467.84, after spurting 3.12, to 467.73, on Thursday. Drug, telephone, tobacco and insurance were among the strongest issues.
The Nasdaq Combined Composite Index climbed 5.77, to 779.26, its third straight advance, led by Microsoft Corp., Nextel Communications Inc., Cisco Systems Inc. and Oracle Systems Corp.
Yesterday, oil stocks had "to deal with lower crude oil prices," and there was "profit-taking in autos" after Ford Motor Co. and Chrysler Corp. hit 52-week highs Thursday, said Jon Groveman, president of Ladenburg, Thalmann & Co.
As for the economy, yesterday's reports of increased personal income and consumer spending in September, higher consumer confidence and a rise in a key Purchasing Managers' index "are like the numbers that have come out for the past several weeks," Mr. Groveman said. "There's something for the bears and the bulls."
Several reports pointed to continued economic recovery. Personal income in September rose by 0.2 percent and consumer spending by 0.3 percent, the Commerce Department reported; the University of Michigan's consumer sentiment index for October rose to 82.7, from 77.9; and the Chicago Purchasing Managers' index advanced to 57.0 in October, from 54.5 last month, with any reading above 50 signaling economic expansion.
"The perception is finally catching on," said Peter Cardillo, research director at Westfalia Investments. "People are realizing living in the best of all worlds, with low inflation and low growth. The economy is not growing at a robust pace, but it is showing signs of improvement."
Stocks "are in pretty good shape," said Ronald Doran, director of institutional trading at C.L. King & Associates in Albany, N.Y. As an example, Exide Corp. shares were up $6.875 after 4 million shares were sold in an initial public offering at $20 apiece. "That's continuing to send a message that IPOs and secondaries are recipients of a lot of cash here," he said.
Strong demand for IPOs like Mercury Interactive Corp., up $5.625 after 2.75 million shares were sold at $13, helped explain yesterday's rise in the Nasdaq market at large, said Jack Bayer, managing director for over the counter trading at Oppenheimer & Co.
Yesterday's announcement by Aetna Life & Casualty that third-quarter profits from continuing operations rose to $1.76 a share, from 43 cents last year, higher than analysts' forecast of $1.13, provided more evidence of broad growth in earnings, said Todd Clark, senior block trader at Mabon Securities. "That sort of thing is not going to hurt" the market, he said.
Aetna shares rose $2.875, to $65.75.
Stocks advanced Thursday after reports on third-quarter economic growth met expectations and reinforced earlier reports sales of autos, homes, and other big-ticket items, all of which suggested faster growth in the economy. Also this week, leading companies, including GM, Xerox Corp., Ford Motor Co. and Bethlehem Steel Corp., UAL Corp. and Delta Air Lines posted better-than-expected earnings.