Stocks Ease in Volatile Trading

Stocks fell modestly Thursday, recovering a bit from steeper losses, as investors wrestled with mixed economic data and news that Pakistani troops had cornered a key Al Qaeda leader.

Stocks tottered in and out of positive territory late in the session after Pakistani officials said forces had surrounded Osama bin Laden’s top lieutenant, Ayman al-Zawahiri, and possibly wounded him in a battle near the Afghan border. Though the news temporarily checked selling momentum after two sessions of gains, it could not fully staunch the market’s downward trend.

“The market’s up, the market’s down -- it’s enough to make your head spin,� John Caldwell, chief investment strategist at McDonald Financial Group, told Associated Press. “I think the one thing that’s certain is volatility is coming back.�

The Dow Jones industrial average finished down 4.52 points, essentially flat, at 10,295.78. The broader Standard & Poor’s 500 index slid 1.43 points, or 0.1%, to 1,122.32. The tech-heavy Nasdaq composite fell 14.32 points, or 0.7%, to 1,962.44.

Losing stocks edged winners on moderate volume.

Word that Pakistani troops had met fierce resistance from fighters entrenched along the South Waziristan frontier bumped the major indexes up from their session lows and sent oil and currency prices churning amid speculation that troops could be closing in on Al Qaeda leaders.

But Wall Street’s ultimately muted reaction reflected investors’ uncertainty about the market’s strength.

Investors seemed unimpressed with the Labor Department’s report that claims for unemployment benefits fell last week to 336,000, their lowest level in more than three years, surprising analysts who had forecast a slight increase after two weeks of declines.

The news raised hopes that the pace of layoffs had slowed to a point where businesses might begin rehiring workers in larger numbers, but also revived inflation fears that hurt the Treasury bond market.

In another report, the government said inflation at the wholesale level grew by 0.6% in January, reflecting the largest jump in energy prices since the start of the Iraq war. The data were released a month late because of changes in the system used for tracking prices.

Separately, the Conference Board’s index of leading economic indicators held steady last month. The index, an indicator of future economic activity, was considered high enough to signal more economic strength and job growth on the horizon.

A dip in Treasury prices pushed the yield on the benchmark 10-year note to 3.75% from 3.71% the day before.

“If there’s inflation in the pipeline, that’s going to be bad for bonds,� said David Ging, a strategist at Credit Suisse First Boston in New York.

In commodity trading, crude oil futures eased to $37.93 a barrel, down 25 cents from the 13-year peak reached Wednesday.

The U.S. dollar fell against other major currencies, while gold prices rose.

Among the equity highlights:

* Microsoft shed 24 cents to $24.89 as talks between the software giant and the European Commission broke down over whether an accord will apply to future conduct, taking a toll on the tech sector. Chip leader Intel fell 59 cents to $27.20.

* Airline stocks fell on concern higher fuel prices will crimp profit, led by American Airlines parent AMR, which lost 73 cents to $12.15. Delta Air Lines slipped 32 cents to $7.65.

* Among oil-related stocks, Baker Hughes gained 71 cents to $37.70, BJ Services rose 84 cents to $45.73 and ConocoPhillips climbed $1.45 to $70.35.

* Kmart Holding surged $2.38 to $37.06 after announcing its first profitable quarter since emerging from bankruptcy last year, even though the discount retailer’s sales at stores open at least a year continued to fall.

* Fortune Brands, the maker of Moen faucets and Jim Beam whiskey, jumped $3.73 to $75.56 after saying first-quarter per-share net income would rise to at least 79 cents, higher than the company’s previous forecast.