- The Washington Times - Saturday, May 23, 2009

Stocks surrendered their gains in the final hour Friday for the third time this week as upbeat retail reports could not ease concerns about the global economy.

In light trading ahead of the holiday weekend, the Dow Jones Industrial Average closed at 8,277.32, down 14.81 points. The broader Standard & Poor’s 500 Index closed at 887, down 1.33 points, and the tech-heavy Nasdaq Composite Index closed at 1,692.01, down 3.24 points.

For the week, stocks rose fractionally.

Sears and the Gap were among the major U.S. retailers with first-quarter earnings that exceeded analysts’ expectations.

Sears Holding Corp., which includes Sears and Kmart stores, reported a first-quarter profit of $26 million, compared to a $56 million loss in the same quarter in 2008.

Sears stock closed at $55.40, up $5.21 or 10 percent.

Gap reported quarterly net earnings of $215 million, $34 million less than the same period in 2008. However, the San Francisco company that includes Banana Republic and Old Navy said store sales decreased less than in the first quarter of last year, and online sales increased 13 percent compared to the year-ago period.

Gap stock closed at $14.39, up 41 cents a share.

The dollar fell to its lowest level in about five months against the euro amid concerns the U.S. government’s credit rating would be downgraded. Government borrowing costs rose to a six-month high, though they may remain too low to attract foreign investors.

The yield on the 10-year Treasury note rose to 3.46 percent from 3.37 percent late Thursday.

Paul Krugman, Nobel Prize-winning economist and Princeton University professor, said in Hong Kong that it’s “hard to believe” the U.S. government could default on its bonds.

“I have to say that I find the idea of a U.S. default still pretty fantastic,” Mr. Krugman said. He said he is “worried” by the level of U.S. debt, but added that the government has an “enormous ability to raise taxes.”

The markets are up more than 30 percent since hitting a 12-year low in early March.

“It’s reasonable to assume the markets would retrench after such a powerful rally,” said Tobias M. Levkovich, chief U.S. equity strategist for Citi Investment Research.

Mr. Levkovich said investors should “look for signals, not noise” by eschewing daily news to examine such fundamentals as more capital becoming available and banks beginning to lend more.

“All of this is good,” he said. “There’s a willingness out there to lend.”

GM shares fell 26 percent to $1.43. Despite tentative union accords this week to trim labor costs, GM is still far from an agreement with its bondholders on reducing $27 billion in debt. The Obama administration has said an accord with creditors must be reached to avoid bankruptcy.

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