Dow finishes down 0.3% for its third straight loss

Stocks edged lower Friday, capping a down week, as renewed concerns about the housing market and U.S. tensions with Iran weighed on the market’s mood.

Treasury bond yields dropped as some investors continued to sell high-risk mortgage-backed securities in favor of lower-risk bonds.

Jitters over Iran sent gold and silver to nine-month highs. Oil reached a nine-week high.

The Dow Jones industrial average slipped 38.54 points, or 0.3%, to 12,647.48, its third straight loss.

The Dow, which hit a record high Tuesday, lost 120.09 points, or 0.9%, for the holiday-shortened week.

Broader indexes also were mostly lower for the day. The Standard & Poor’s 500 eased 5.19 points, or 0.4%, to 1,451.19.

The technology-dominated Nasdaq composite fell 9.84 points, or 0.4%, to 2,515.10.

Losers had a modest edge over winners on the New York Stock Exchange and on Nasdaq.

A number of broad market indexes joined the Dow at all-time highs early in the week, but investors became wary later. That could mean that the new year’s rally is running out of steam, analysts said.

One issue is the rising number of defaults on so-called sub-prime mortgages made in 2006.

“The consensus has been it’s going to be contained,” said Bill Strazzullo, market strategist at Bell Curve Trading, of the sub-prime troubles.

“Now, people are questioning that,” fearing that “it’s going to start with the weakest credit and work its way up” through the banking system, he said.

Shares of lenders, brokerages and home builders were broadly lower Friday. Countrywide Financial fell 81 cents to $39.33, Merrill Lynch dropped $2.46 to $89.04 and builder Ryland Group sank $1.36 to $50.56.

In the market for credit-default swaps, which allow investors to hedge against losses on mortgage-backed securities, an index of swaps on 20 low-rated bonds issued in the second half of last year fell 7.7% on Friday and has plunged 30% since mid-January, according to Bloomberg News.

That’s a sign that investors expect mounting losses on the bonds as more homeowners with sub-prime loans default.

As some investors fled high-risk bonds Friday, they bought Treasuries, driving yields lower. The 10-year T-note yield ended at 4.67%, down from 4.73% on Thursday. The yield has pulled back from 4.89% on Jan. 29.

Worries about a U.S.-Iran conflict also pushed some investors into Treasuries. Vice President Dick Cheney said “all options are on the table” for the U.S. in keeping Iran from becoming a nuclear power.

Gold and silver got a lift from the U.S.-Iran war of words. Near-term gold futures in New York added $3.70 to $683.10 an ounce, the highest since May. Gold has risen for seven straight weeks.

Silver futures surged 34.8 cents to $14.59 an ounce.

On Wall Street, although the Dow had its biggest weekly loss since August, analysts noted that there was no rush to sell. Many investors remain optimistic that the economy is in the midst of a “soft landing” that will give way to stronger growth in 2008 and beyond.

For the week, the S&P; 500 slipped 0.3%, while the Nasdaq composite gained 0.8%. The tech sector was buoyed by strength in semiconductor stocks.

Among Friday’s market highlights:

* Shares of many sub-prime lenders continued to spiral lower. NovaStar Financial fell 86 cents to $8.48, bringing its loss for the week to 51%.

Also in the sector, New Century Financial sank $1.02 to $15.52 and Accredited Home Lenders lost 92 cents to $22.68.

* Among other financial services issues, Wells Fargo fell 58 cents to $35.63, Bear Stearns dropped $4.79 to $161.29 and J.P. Morgan sank 61 cents to $51.03.

* Real estate investment trusts, one of the hottest market sectors of recent years, pulled back for a third session. Mack Cali Realty slid $1.32 to $53.10 and Public Storage dropped $3.57 to $106.37.

* On the plus side, some semiconductor issues continued to climb. Microsemi surged $1.53 to $21.45 and Cirrus Logic was up 41 cents to $8.91.

* Glendale-based American Reprographics soared $3.63 to $34.82 after the document-management services company reported sharply higher fourth-quarter earnings.

* Near-term oil futures in New York ended the week at $61.14 a barrel, up 19 cents for the day and $1.75 for the week.