Wall Street stocks pared early gains on Friday after new home sales hit their lowest rate in more than 12 years, raising fears that the declining housing market would constrain US economic growth.
Traders looked to buy into weakness in early trade after a sharp sell-off on Thursday but the major indices later turned negative as homebuilder stocks came under pressure. Investors bought energy stocks as crude oil prices climbed, but also showed a preference for consumer staples and utilities, indicating they remained in a defensive mood.
The S&P 500 rallied off its low for the session to close up 0.1 per cent at 1,478.49 points, having gained as much as 0.8 per cent. The S&P ended the week down 0.4 per cent, a trading period shortened by Christmas.
The Nasdaq Composite fell 0.7 per cent on the week to 2,674.46 points, while the Dow Jones Industrial Average was down 0.6 per cent at 13,365.87.
Small-cap stocks fared poorly. The Russell 2000 fell 1.8 per cent this week and is poised to underperform the S&P for the first time in eight years.
Homebuilders suffered sharp losses on Thursday after new home sales fell 9 per cent to an annual rate of 647,000 in November, much more than economists had anticipated. The previous month's sales figures were also revised sharply lower.
Although the number of unsold homes on the market fell, the slower sales rate increased the inventory backlog to a 9.3 month supply, a 5.7 per cent increase.
Peter Schiff, president of Euro Pacific Capital, said: "The homebuilding industry is over for the next 10 years in the US. There's no point in building homes - there's a glut of unsold homes on the market."
The S&P homebuilder index fell 3.2 per cent to 358.18 for a 1.6 per cent decline this week. KB Home fell 7.8 per cent to $21.08 over the period.
Credit insurers fell sharply after Warren Buffett, the billionaire investor, prepared to launch a municipal bond insurance unit, posing a threat to monoline insurers struggling to cope with credit market turmoil.
US bond insurers have come under increasing pressure to shore up their capital levels amid rating agency threats of credit downgrades because of their exposure to high-risk debt securities.
MBIA fell 6.5 per cent to $18.74 and Ambac Financial shed 5.8 per cent to $25.12 this week.
Separately, Berkshire Hathaway, Mr Buffett's conglomerate, agreed to buy a reinsurance unit from ING Group, the Dutch financial services company, for about $433m. Berkshire this week also purchased a controlling stake in Marmon Holdings, the manufacturing and services group.
There was more reassuring news for the industrial sector after two reports showed a pick-up in business activity in the Midwest and New York this month.
Financials were again a drag on leading indices this week after Goldman Sachs warned it expected three banks, Citigroup, Merrill Lynch and JPMorgan, to share $33.6bn in writedowns in the fourth quarter. Merrill fell 4.6 per cent to $52.97 in spite of securing a $6.2bn capital injection from Singapore's Temasek Holdings and Davis Selected Advisers. Traders were disappointed Merrill had sold stakes at a discount to its market price.
Sallie Mae fell 1 per cent to $19.65 after the troubled lender sold $1bn of convertible securities and $2bn of common stock to pay off sour derivative bets.
Energy stocks made solid gains as concerns about supply and a spike in geopolitical tension caused crude oil prices to surge back towards $100 a barrel.
Among the chief beneficiaries were Hess, the oil producer and refiner, up 4.1 per cent at $101.98 and Transocean, the world's largest offshore drilling company, 1.5 per cent higher at $146.02. Weatherford International, an oilfield services company, rose 2.9 per cent to $70.44.
Companies in the materials sector also profited from a spike in commodity prices. Alcoa rose 1.4 per cent to $36.86 while United States Steel climbed 3.9 per cent to $119.77.
The transport sector continued to struggle as energy costs looked poised to soar. Airlines felt particularly heavy selling pressure.
JetBlue, the low-cost carrier, fell 6.3 per cent to $6 while UAL, parent of United Airlines, declined 3.5 per cent to $34.49 this week.
Retailers were also in focus as investors studied early indicators for the important Christmas shopping period.
Macy's, the department store operator, fell 4 per cent to $25.48 this week and Dillard's lost 3.5 per cent to $18.78.
