Stocks Rise in Muted Trading

Technology stocks rose slightly Friday as investors stepped cautiously back into the market for a round of bargain-hunting, but Merck (MRK) weighed on blue chips after the giant drug company scrapped its second experimental medicine in 10 days.

The blue-chip Dow Jones industrial average (search) rose 9.11 points, or 0.09 percent, to 9,628.53. The technology-focused Nasdaq Composite Index (search) closed up 11.96 points, or 0.64 percent, at 1,893.88, while the broad Standard & Poor's 500 Index (search) climbed 1.63 points, or 0.16 percent, to 1,035.28.

However, for the second week in a row the major stock indexes ended lower. The Dow and S&P 500 fell 1.4 percent, while the Nasdaq fell 1.9 percent.

"We've seen a classic rotation out of health care," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank Private Wealth Management. Investors are returning to the technology sector, which they regard as having the best outlook for growth, he said.

"We're seeing a continuing cloud over the market around the increased terrorism worldwide," said Brian Bush, director of equity research at Stephens Inc. "So despite the fact ... that the economy continues to recover and grow, it seems that psychologically the market right now is looking for reasons not to go up."

Longer term, each of the main gauges has risen dramatically since mid-March as investors anticipated a full recovery for the economy and improved corporate profits.

Terrorism fears weighed on the market after four bombings in Turkey since last Saturday, including attacks on London-based HSBC bank and the British consulate on Thursday. And the increasing health of the U.S. economy, while supporting stocks, is raising some other concerns for the market.

"Right now, investors are ... basically convinced the recovery is here and that earnings growth will resume for awhile" but they're worried the Federal Reserve might raise interest rates over the next six months, said John C. Forelli, portfolio manager for Independence Investment LLC.

On Friday the Dow was kept afloat by AT&T Corp. (T), which rose 90 cents, or 4.7 percent, to $20 in a late afternoon rally. Brokerage Lehman Brothers said in a research report it expects AT&T to hike its dividend by 20 percent to 30 percent in January and may also repurchase 10 percent to 15 percent of its shares. AT&T declined comment.

Merck (MRK) was the Dow's biggest loser, sinking $2.93, or 6.5 percent, to $42.23, weighing heavily on the blue-chip average. The company discontinued its second experimental medicine in 10 days -- this time a diabetes drug found to cause cancer in mice.

The S&P pharmaceutical index was one of the market's biggest decliners, dropping 1.8 percent.

Dillard's Inc. (DDS) jumped $1.07 to $15.57 after the retailer reported a quarterly loss that was narrower than Wall Street's forecasts.

Nordstrom Inc. (JWN) climbed $3.10 to $34.92 after the retailer posted profits that handily beat analysts' estimates.

Walt Disney Co. (DIS) fell 10 cents to $22.58 after the entertainment conglomerate posted better-than-expected quarterly earnings, citing in part strong performance from movie studio hits.

Freddie Mac (FRE), the No. 2 U.S. mortgage finance company, rose slightly after it found some closure on the long-running scandal over its accounting. The company admitted overstating earnings by almost $1 billion in 2001 and understating profit by more than $6 billion in 2002, 2000 and earlier periods in order to show the steady growth favored on Wall Street.

Its shares closed up 3 cents at $55.67, helped by two of the big three rating agencies' affirming their ratings on Freddie Mac debt.

Trading was light on the New York Stock Exchange (search), with 1.26 billion shares changing hands, which was below the daily average of about 1.37 billion for the past month. Nearly 1.6 billion shares were traded on Nasdaq, above the daily average of 1.47 billion shares for the past month.

Advancers beat decliners 3 to 2 on the NYSE and about 6 to 5 on Nasdaq.

The Russell 2000 index (search), a barometer of smaller company stocks, rose 2.84, or 0.5 percent, to 525.92.

Overseas, Japan's Nikkei stock average finished 0.1 percent lower. In Europe, France's CAC-40 advanced 1.3 percent, Britain's FTSE 100 rose 0.3 percent and Germany's DAX index edged up 0.1 percent.

Reuters and the Associated Press contributed to this report.