Stocks eke out quarterly gains

Stocks rose, dropped and then recovered Friday -- much as they did over the course of the first quarter.

The action on the last trading day of the period was fueled by stronger-than-expected economic data, offset by concerns about trade issues and inflation pressures.

For the three months most broad U.S. market indexes posted gains, despite a sharp pullback in late February and early March.

The blue-chip Standard & Poor’s 500 index was up 0.2% in the quarter. The average New York Stock Exchange issue gained 1.3%.

The average domestic stock mutual fund rose 2.1% in the quarter, according to preliminary data from Morningstar Inc.

Many foreign markets outpaced Wall Street in the period, as they have for the last few years. U.S. investors holding foreign shares also benefited from weakness in the dollar, which makes foreign stocks worth more when translated from stronger currencies to dollars.

The average foreign stock fund rose 3.2% in the quarter, Morningstar said.

On Friday, the Dow Jones industrial average rallied at the outset of trading, tumbled, then rallied again in the final hours. The blue-chip index finished with a gain of 5.60 points, or less than 0.1%, to 12,354.35.

The market’s early advance was driven by news of healthy increases in consumer income and spending in February and by surprising strength in an index of Chicago-area manufacturing activity this month.

The data damped fears that the economy was headed for a severe slowdown.

But the rally evaporated after the Bush administration detailed economic sanctions against China to protect U.S. paper producers from Chinese government-subsidized exporters.

The move fanned fears of rising trade tensions between the two economic giants.

“When you talk about the possibility of growing protectionism, that could be a really serious blow to an economy that was already slowing down,” said Ernie Ankrim, chief strategist at Russell Investment Group in Tacoma, Wash.

The Commerce Department’s report that core inflation rose in February at the fastest pace since August caused additional wariness.

From its morning high to its session low, the Dow sank 173 points. But buyers then took control again. Traders said institutional investors were shoring up their portfolios and picking up shares they considered bargains.

Stocks were strong at the start of the quarter, then sank in late February and early March on concerns that a stumbling housing sector could drag the overall economy into recession.

But major indexes have recovered the bulk of their losses in recent weeks. Many investors continue to believe that the economy is headed for a “soft landing,” or a gentle slowdown that will ease inflation pressures and allow the Federal Reserve to eventually cut interest rates.

Rising oil prices are presenting another challenge to the bullish case, however. Near-term crude futures ended Friday at $65.87 a barrel, down 16 cents from the six-month high reached Thursday amid growing tension between Iran and the West.

In the first quarter, the Dow slipped 0.9% after rising in each of the previous six quarters.

But the Russell 2,000 small-stock index rose 1.7% in the period, and the S&P; mid-size stock index jumped 5.5%.

The two best-performing major stock sectors in the S&P; 500 in the period were utilities (up 8.4%) and basic materials (up 8.4% as well). The worst-performing sector was financial services (down 3.4%).

Among Friday’s market highlights:

* The S&P; 500 eased 1.67 points, or 0.1%, to 1,420.86.

The Nasdaq composite added 3.76 points, or 0.2%, to 2,421.64. It was up 0.3% in the quarter.

* Treasury bond yields were little changed. The yield on the 10-year T-note was unchanged at 4.65%, down from 4.70% at the start of the quarter.

* The dollar ended at 117.81 yen, down from 117.99 on Thursday and from 119.07 at the start of the quarter.

The euro was worth $1.334 on Friday, the same as Thursday, and up from $1.320 three months earlier.

* In foreign trading, Mexico’s main stock index hit a record high, rising 0.2% to 28,747.69. It was up 8.7% in the quarter.