Stocks capped a week of big gains with a mixed finish Friday as investors grappled with surging energy prices that overshadowed news of a surprise increase in home construction.
Investors searching for signs that the housing market is bottoming got some welcome news early in the day as the Commerce Department reported that home construction jumped 8.2% in April.
But as the price of oil soared as high as $127.82 intraday, the stock market was preoccupied for much of the session by energy prices and their threat to consumer spending, which accounts for more than two-thirds of U.S. economic activity.
Such concerns were reinforced by another indication that the continuing advance in energy and food costs was weighing on Americans' mood. The Reuters/University of Michigan consumer sentiment index fell to 59.5 in May, its lowest since 1980.
Steve Neimeth, portfolio manager for AIG SunAmerica mutual funds, said investors were worried that rising energy prices could derail any rebound in the economy.
"Although the housing numbers today were generally positive, the Michigan survey was quite poor and, more importantly, a continued spike in energy and commodities is causing investors to second-guess the second-half recovery," he said. "If oil and gas prices continue to go up, consumers are unlikely to have the spending ability in the second half."
Still, the Dow Jones industrial average recovered from an early drop of 100 points to close off just 5.86 points at 12,986.80. The Standard & Poor's 500 index ticked up 1.78 points, or 0.1%, to 1,425.35, and the Nasdaq composite fell 4.88 points, or 0.2%, to 2,528.85.
The Russell 2,000 index of smaller-company stocks fell 2.21 points, or 0.3%, to 741.17.
Gaining issues outnumbered decliners by about 8 to 7 on the Big Board.
For the week, the Dow rose 1.9%, the S&P; 500 index climbed 2.7%, the Nasdaq shot up 3.4% and the Russell 2,000 rallied 2.9%.
Government bond yields rose Friday. The yield on the benchmark 10-year Treasury note climbed to 3.85% from 3.81% Thursday. The dollar fell against other major currencies, while gold advanced.
Oil futures closed up $2.17 to a record $126.29 a barrel, pushed in part by supply disruptions in China.
Crude's rally held even after Saudi Arabia's oil minister said the country boosted production by 300,000 barrels a day last week. And the Energy Department said it would stop adding to the nation's Strategic Petroleum Reserve for six months starting July 1.
David Kelly, chief market strategist at JPMorgan Funds, said investors would probably continue to worry about oil prices. But there is a sense, he said, that if the economy is in a recession it will prove to be a mild one. Stocks have been able to advance from their mid-March lows because fears of worsening troubles in the credit market have receded somewhat, he said.
"I think oil is still the worrying wild card in all of this, but the central theme of this year is that we are gradually moving from the credit storm to the economic storm," Kelly said. "At this stage the economic storm is essentially getting downgraded from a hurricane to a nor'easter."
The economic stimulus checks that have begun arriving in mailboxes this month should help consumers absorb higher energy prices, Kelly said.
Among the day's market highlights:
* Energy stocks surged, with some hitting record highs. Chevron gained $1.89 to $100.38; Hess jumped $5.89 to $128.03.
* Downtown Los Angeles office landlord Maguire Properties tumbled $1.35, or 8.2%, to $15.20 on word that an offer by Chairman and Chief Executive Robert Maguire III to buy the company had been derailed.
* Overseas, key stock indexes increased 0.8% in Britain, 1.1% in Germany and 0.4% in France. Shares dropped 0.2% in Japan.