Stocks ended mostly higher on Friday, with the Dow and S&P 500 ending two days of heavy losses, though traders continued to fret over planned changes to the Federal Reserve's easy money policy.
Major indexes posted their biggest weekly declines since April, while the Nasdaq fell for a third straight day on a steep decline in software company Oracle Corp. Markets were volatile, with the Nasdaq at one point dropping more than 1 percent.
Shares have slumped since Wednesday when Federal Reserve Chairman Ben Bernanke laid out the Fed's plans to scale back on its USD 85 billion in monthly asset purchases. The S&P broke under its 50-day moving average, contributing to 4.6 percent pullback from its all-time closing high reached on May 21. This retreat represents the largest since an 8.9 percent decline between September and November.
"A lot of investors thought the sell-off was overdone after we broke through those technical levels, but all the existential things that drove us down are still in place," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York. "People aren't sure what's going to happen with Fed policy or rates or anything else. It is too soon to say we hit a bottom."
Slightly more stocks rose than fell on the New York Stock Exchange while 57 percent of Nasdaq-listed shares rose. About 10.29 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, above the daily average so far this year of about 6.36 billion shares.
When trading began on Friday, the S&P 500 had fallen nearly 5 percent from an all-time closing high of 1,669.16 on May 21. However, stocks rebounded after a Wall Street Journal analysis said the market may be misreading the Fed and that a reduction in bond buying may not come as soon as some expect.
While the S&P turned positive in afternoon trading, the 10-year Treasury yield rose to 2.531 percent as investors reset expectations after Bernanke gave a more explicit timeline for scaling back its bond-buying.
Volatility has spiked since May 22 when Bernanke first hinted that the Fed may begin to rein in its stimulus measures. Analysts cited the quarterly expiration and settlement of June equity options and futures contracts on Friday as another source of volatility and higher volume.
The CBOE Volatility Index, a gauge of anxiety on Wall Street, fell 8 percent to 18.86. On Thursday, it jumped 23 percent and closed above 20 for the first time this year.
The Dow Jones industrial average was up 41.08 points, or 0.28 percent, at 14,799.40. The Standard & Poor's 500 Index was up 4.24 points, or 0.28 percent, at 1,592.43. The Nasdaq Composite Index was down 7.39 points, or 0.22 percent, at 3,357.25.
For the week, the Dow fell 1.8 percent, the S&P was down percent 2.1 percent, and the Nasdaq lost 1.9 percent. It was the biggest weekly decline for all three since April and also the fourth week of losses out of the past five.
Shares of major banks were hit hard as the Treasuries sell-off continued on fears of losses from their bond holdings. Citigroup dropped 2.2 percent to USD 46.87 and Morgan Stanley lost 1 percent to USD 24.91. Bank of America Corp fell 1.6 percent to USD 12.69.
"Investors are very nervous about financials, but I think they'll come back to the group when earnings are shown to be holding up," said John Carey, who helps oversee USD 200 billion as portfolio manager at Pioneer Investment Management in Boston.
At these levels, he added, "I would look for opportunities in the group."
Oracle dropped 9.3 percent to USD 30.14 a day after the tech giant missed expectations for software sales and subscriptions for a second straight quarter. Oracle was the biggest drag on both the S&P 500 and the Nasdaq.
S&P Dow Jones Indices said Thursday that News Corp's spinoff - also known as News Corp - will replace Apollo Group in the S&P 500. Apollo fell 2.5 percent to USD 19.24.
China's central bank faced down the country's cash-hungry banks on Friday, letting interest rates spike as it increased pressure on banks to curb rampant informal lending and speculative trading. Some worry that its approach could backfire, creating the potential for defaults and gridlock in the money markets of the world's second-largest economy.
