The Dow Jones industrial average posted its best week since Nov. 19, rising slightly Friday to achieve another record close, while the S&P 500 and the Nasdaq dipped as investors were reluctant to take long positions before the holiday weekend.

The Dow Jones industrial average was up 2.56 points, or 0.02 percent, to end at 12,767.57, a record. The Standard & Poor's 500 Index declined 1.27 points, or 0.09 percent, to finish at 1,455.54. The Nasdaq Composite Index inched down just 0.79 of a point, or 0.03 percent, to close at 2,496.31.

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For the week, the Dow rose 1.5 percent, the S&P 500 gained 1.2 percent and the Nasdaq advanced 1.5 percent.

A drop in the shares of Microsoft Corp. (MSFT) kept stocks in negative territory for most of the day, as the software maker cast doubts about sales prospects of its much hyped new Vista computer operating system.

Concerns sparked by a plunge in U.S. housing starts and a dip in a gauge of consumer sentiment added to the negative tone.

But the indexes pared losses late in the day, pushing the Dow up to a record close for the third straight day.

Traders said the Presidents Day holiday Monday and expiration of February options contributed to choppy sideways trading, while news that General Motors Corp. (GM) was in preliminary talks to buy Chrysler underscored optimism about merger activity.

"As of noon, volume just dried up. Everybody started their weekend early," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.

This week's rally was triggered by comments Wednesday from Federal Reserve Chairman Ben Bernanke, who said that inflation is poised to ease while the U.S. economy grows moderately.

After Thursday's closing bell, though, the mood became more cautious and Microsoft's stock fell after Chief Executive Steve Ballmer's comment that analysts' revenue forecasts for Vista were "overly aggressive." The comments come two weeks after Microsoft released the upgrade to its Windows operating system.

"I guess you could say it was bearish news, but it didn't really seem to have much effect on the market by the end of the day," Lesh said. "I guess people are taking a wait-and-see on Microsoft and Vista to see how they do."

During Friday's regular trading, shares of Microsoft, the world's largest software maker, slid 2.4 percent, or 72 cents, to $28.74, their biggest drop in nine months. Microsoft was the most heavily traded Nasdaq stock.

The GM talks were first reported by the trade journal Automotive News. GM and Chrysler parent DaimlerChrysler AG

declined to comment on the report.

Shares of GM were down 0.3 percent, or 10 cents, at $36.34, while DaimlerChrysler's U.S.-listed shares were up 4.4 percent, or $3.08, at $73.33 on the New York Stock Exchange.

The pace of U.S. home construction fell in January, with the figures for housing starts showing the sharpest drop since October — much weaker than economists had expected.

The slide in housing starts gave investors a reason to sell shares of home builders, including KB Home , which pushed the Dow Jones U.S. Home Construction index down 0.6 percent. Shares of KB Home fell 1 percent, or 53 cents, to $54.22.

In addition, U.S. consumer sentiment slipped unexpectedly in February as concerns over unemployment and inflation sapped confidence, according to the Reuters/University of Michigan Surveys of Consumers.

On the NYSE, about 1.36 billion shares changed hands, substantially below last year's estimated daily average volume of 1.84 billion. On the Nasdaq, about 1.93 billion shares traded, below last year's daily average of 2.02 billion.

Decliners narrowly edged ahead of advancers on the NYSE, with 1,676 shares falling and 1,657 issues rising.

On the Nasdaq, the breadth was positive, with about 9 stocks rising for every seven that fell.

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