SINGAPORE (Reuters) – U.S. stock futures rose 1 percent on Thursday after a sharp drop on Wall Street overnight, limiting losses in Asian share markets, though the focus was shifting to how Europe reacts to a sovereign debt crisis that is now threatening its banking system.

Major European markets also looked set to draw some comfort from the U.S. futures bounce, with financial bookmakers predicting British, French and Germany stocks would open up as much as 1.6 percent.

The Australian dollar, often a measure of investors’ willingness to take risks, bounced above $1.02 as Asian equities pulled back from their lows, suggesting traders and investors were being nimble rather than selling with blinders on in the face of risks to global growth.

Trading was whippy and positions were built, slashed and then rebuilt within an hour. The euro crept higher, but Europe’s devolving crisis was too complex and disturbing to make any long-term bets.

Fast-moving rumors about a sovereign debt downgrade of France as well as talk doubting the health of French banks swirled in Europe caused the biggest widening in the benchmark index of European credit default swaps on Wednesday since the credit crunch in 2008.

The three major rating agencies later reaffirmed France’s AAA rating, and said its outlook was stable, but markets remain concerned that French banks are among the most exposed to a worsening of Europe’s government debt crisis.

European policymakers have been struggling to keep the euro zone’s government bond markets from being savaged, but Wednesday’s price action suggested the problems may be rapidly spreading to the private sector.

“The market is in a bit of heat-seeking missile mode looking for vulnerabilities around the world, and Europe is obviously in its sights at this point in time,” said Grant Turley, senior strategist at ANZ in Sydney.

GETTING DOMESTICATED

As S&P 500 futures firmed, Japan’s Nikkei share average trimmed initial losses of 2.2 percent and was down 0.7 percent by midday, but still not far from a five-month low hit on Tuesday.

Carmakers and machinery makers fell as investors continued their shift into domestic-demand related and defensive sectors such as pharmaceuticals and retail from cyclicals, on worries over the state of the global economy and the strong yen.

Expectations the Bank of Japan would continue to step into the market to buy Nikkei exchange traded funds also limited the selloff in Tokyo.

By 1 a.m. EDT, S&P futures were up 1.4 percent after the cash index tumbled 4.4 percent overnight on Europe’s crisis and fears that the U.S. economy could slide back into recession.

Tuesday’s intraday low at 1,101 is major support for the index since it is also the 38.2 percent retracement of the 2009-2011 rally.

The benchmark MSCI Asia Pacific ex-Japan stocks index also pared early losses and was down 0.3 percent by midday, helped by outperforming telecommunications and consumer-related shares.

The index has fallen 13 percent so far in August, in line with the all-country world index, suggesting investors were not being so discriminating in the equity sell-down.

Institutional fund managers were mostly confident about Asian assets and some have been trying to position their portfolios to gain when equities bounce and bond yield spreads over Treasuries tighten.

Khiem Do, head of Asian multi-asset with Baring Asset Management in Hong Kong, said some Asian mutual funds were seeing redemptions but nothing significant.

“From the perspective of long-term institutional investors, if anything there are more people on the buy side than on the sell side. Valuations are very attractive at the moment especially in the case of Asia,” Do said.

AUSSIE BOUNCE

The euro bounced as equities recovered from their lows, but remained vulnerable, especially against the yen and Swiss franc.

The euro was at $1.4225, up 0.3 percent on the day, though locked within a tight trading range by the debt crisis in Europe and the U.S. economic slowdown.

“I think the EU debt problem is far bigger a concern for Asia than the U.S. downgrade as investors are continuing to buy U.S. Treasuries anyways,” said Francis Cheung, senior strategist with Credit Agricole CIB in Hong Kong.

“I think we can see some rebounds here and there, but overall the sentiment is still very cautious.”

High-yielding currencies were popular, with the Australian dollar up 0.9 percent to $1.0240, holding above Tuesday’s drop to below parity but well off from $1.10 where the currency started the month.

Commodities were a mixed bag, with copper prices jumping and oil slipping, while precious metals slid after a margin increase by the CME Group on gold futures and the equities comeback.

Spot gold prices were down 0.7 percent to $1,781.89 an ounce after earlier hitting an all-time high of $1,813.79. The undisputed safe haven has risen 11 percent so far this month and is up 27 percent in 2011.

The CME Group raised maintenance margins for trading Comex 100 Gold Futures by 22.2 percent, effective after the close of business on Thursday. The margin hike was not expected to be a big obstacle to further gold gains.

“It’s difficult to see a great deal of selling, because we are in very, very volatile and uncertain times when markets are moving very violently. Gold has proven too much of an attraction as an alternative investment and the margins may not have as much influence,” said Darren Heathcote, head of trading at Investec Australia.

Three-month copper on the London Metal Exchange rose 2.7 percent to $8,828 a tonne, after losing 1.6 percent in the last session.

Oil futures fell, with U.S. crude for September delivery down 0.4 percent at $82.58 a barrel, though well off Tuesday’s intraday low of $75.71. Prices had jumped overnight after an unexpected decline in U.S. oil inventories.

(Additional reporting by Ian Chua and James Regan in Sydney and Swati Bhat in Singapore; Editing by Kim Coghill)

NEW YORK (Reuters) – Stocks were mostly flat in a thinly traded session on Tuesday as investors digested gains accrued last week, the best week for equities in two years, while strength in Netflix helped lift the Nasdaq.

Equities rallied for five straight days to push the S&P 500 up 5.6 percent, rebounding from weakness over the past two months. But with questions persisting over the strength of economic growth the U.S. debt ceiling, the summer could be a rough one.

“It’s no real surprise that the market is having a harder time today getting excited, given the big week we just had,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management, which oversees about $50.6 billion.

The day’s volume was light, a trend that was also seen as enduring. The anemic action could exacerbate stocks’ gyrations in the holiday-shortened week, especially with Friday’s non-farm payrolls report looming large on the horizon. The payrolls data is expected to show tepid job creation in June. Markets were closed on Monday for the U.S. Independence Daholiday.

“Markets are in a highly volatile state right now, making this a difficult market to make a lot of progress in,” Miller said. “We’re going to go back and forth with strong weeks like last week and weak ones like what we had before that.”

The Dow Jones industrial average (.DJI) was down 13.96 points, or 0.11 percent, at 12,568.81. The Standard & Poor’s 500 Index (.SPX) was down 1.90 points, or 0.14 percent, at 1,337.77. The Nasdaq Composite Index (.IXIC) was up 7.20 points, or 0.26 percent, at 2,823.23.

Last week, moves to avert a debt crisis in Europe and surprisingly strong regional business data helped lift some of the gloom on Wall Street.

The Nasdaq was lifted by Netflix Inc (NFLX.O), which surged 7.7 percent to $288.52 after it said it was expanding its online video service to 43 countries in Latin America and the Caribbean.

New orders received by U.S. factories bounced back in May, boosted by demand for transportation equipment, a government report showed. The 0.8 percent rise was slightly below economists’ forecast.

Stocks were little impacted by the data following last week’s move and some traders may be betting that the S&P’s rally is near an end.

A substantial August put spread was transacted in the S&P 500 Index (.SPX) on Tuesday and was followed by the purchase of a hefty August $120-$127 put spread on the SPDR S&P 500 Trust (SPY.P), said Frederic Ruffy, WhatsTrading.com options strategist.

Morgan Stanley’s U.S. equity strategist, Adam Parker, said lower growth and inflation worries are set to drive the S&P 500 price-to-earnings ratio toward 10 within five years as anxious investors keep a lid on stock prices.

During the recent sell-off, the P/E ratio, or what investors are willing to pay for a dollar of earnings, fell to 12.7 from 13.5, according to Morgan Stanley’s data. The note was dated July 4.

U.S. crude oil futures surged 2.4 percent to $97.23 a barrel after Barclays Capital raised its forecast for the commodity in 2012, lifting the S&P energy index (.GSPE) up 0.7 percent. Marathon Oil (MRO.N) rose 3.5 percent to $34.15.

In company news, Southern Union Co (SUG.N) advanced 2.6 percent to $41.40 after pipeline operator Energy Transfer Equity LP (ETE.N) raised its bid to buy its rival by 21 percent to about $5 billion, trumping the $4.9 billion bid offer from Williams Companies Inc (WMB.N).

Immucor Inc (BLUD.O) surged 30.3 percent to $27 after the diagnostics firm said it agreed to be acquired by private equity group TPG Capital for a fully diluted equity value of $1.97 billion.

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)

LONDON – European stocks were helped Friday by an easing in tensions over Greece’s debt crisis after a big Cabinet reshuffle and suggestions that Germany has softened its stance over the need for private creditors to shoulder a part of a second Greek bailout.

The centerpiece of Prime Minister George Papandreou’s wide-ranging Cabinet reshuffle was the appointment of long-time rival Evangelos Venizelos to finance minister and deputy prime minister.

Papandreou will be hoping that the move brings an end to a damaging 48-hour political crisis that raised fears that Greece could run out of money in less than a month.

The reshuffle came after a seven-hour meeting between Socialist lawmakers and Papandreou on Thursday, at which they demanded that the prime minister remove inexperienced loyalists from the Cabinet and replace them with more experienced party veterans, mostly in their late-50s.

The hope in the markets is that Papandreou has done enough to get austerity measures through Parliament, which are necessary for the country to get more bailout funds.

Further relief came from news that Germany may be backing off from its tough stance to get private creditors to take their share of any future second bailout of Greece.

In a press conference with French President Nicolas Sarkozy, Germany Chancellor Angela Merkel agreed that private investors should be part of the solution but that their participation had to be on a “voluntary” basis.

“Markets are currently taking this as a positive step,” said UBS analyst Chris Walker.

In Europe, the FTSE 100 index of leading British shares was up 0.3 percent at 5,713 while Germany’s DAX rose 0.7 percent to 7,156. The CAC-40 in France was 1.1 percent higher at 3,835.

Greek stocks were doing particularly well, with the main ATHEX index up 3.6 percent.

Wall Street was poised for a solid opening, too — Dow futures were up 0.7 percent at 11,976 while the broader Standard & Poor’s 500 futures rose 0.8 percent to 1,273.

The euro was also a big gainer, climbing 0.5 percent on the day to $1.4284. On Thursday, it had fallen below $1.41 for the first time in three weeks as investors fretted about a possible Greek debt default.

Greece’s debt crisis has been the main driver in markets this week, but with a seemingly calmer mood Friday, investors may turn to U.S. economic data later for more direction. A run of weak U.S. economic news has weighed on stock markets over the past few years.

The University of Michigan’s monthly consumer confidence survey could well be a catalyst to how markets end the week. The consensus in the markets is that the headline index will rise modestly to 74.5 in June from the previous month’s 74.30.

“Any signs of improving demand from U.S. consumers would have wide reaching implications and the hope is that with oil prices tumbling, lower petrol costs will free up cash for discretionary spending,” said Ben Critchley, senior sales trader at IG Index.

Oil prices continued to push lower Friday, with the benchmark rate on the New York Mercantile Exchange down another $1.22 to $93.76 a barrel.

Earlier in Asia, before the reshuffle and the German comments, stocks pushed lower.

Japan’s Nikkei 225 index closed 0.6 percent lower at 9,351.40 while Hong Kong’s Hang Seng index fell 1.2 percent to 21,695.26.

Mainland Chinese shares fell to their lowest level so far this year as investors reacted to news of a rise in the rate for Chinese central bank’s three-month bills on Thursday, seen as a cue that an interest rate hike may be in the offing.

The Shanghai Composite Index fell 0.8 percent to 2,642.82, while the Shenzhen Composite Index fell 1.1 percent to 1,085.11.

____

Pamela Sampson in Bangkok contributed to this report.

STOCKS RISE: A better than expected retail sales report pushed indexes higher on Tuesday for only the third day this month. The three major indexes had their best day so far in June.

SALES REPORT: The government said retail sales edged down 0.2 percent last month. Analysts had expected worse. Excluding weak car sales, retail sales were actually higher, inching up 0.3 percent.

THE INDEXES: The Dow Jones industrial average rose 123.14 points, or 1 percent, to close at 12,076.11. The S&P 500 index rose 16.04, or 1.3 percent, to 1,287.87. The Nasdaq rose 39.03, or 1.5 percent, to 2,678.72.

NEW YORK (Reuters) – An unexpectedly strong report on U.S. payrolls helped equities bounce back on Friday from four days of losses, tempering worries that stocks could suffer

the sharp declines seen this week in commodities.

Stocks held strong gains for most of the session but ended the week down more than 1 percent. Speculation that Greece might leave the euro zone late on Friday caused stocks to trim gains and gave investors something to worry about as the strength of the market’s rally comes into question.

However, the S&P held above key support levels, indicating the week’s retreat could set the stage for further gains in contrast to the tumultuous declines in silver and oil markets.

“The stock market is trying to stand on its own feet,” said Nick Kalivas, senior equity index analyst at MF Global in Chicago. “Corporate news has been pretty strong, and stocks look like they’re more attractively valued than commodities.”

A massive selloff in materials and oil on Thursday forced investors out of high-risk assets. The iShares Silver Trust (SLV.P) suffered its worst week of outflows ever after heavy losses in the metal.

Stocks biggest boost came from the strong U.S. April payrolls report, according to Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. The data showed an increase of 244,000 jobs, the most in 11 months.

But stocks came off highs after German magazine Spiegel carried a report, later denied, that Greece had raised the possibility of leaving the euro zone.

“People’s memory of the Greek crisis last year caused liquidation that is spilling over from currency and commodity markets into the stock market,” said Kalivas.

The three major stock indexes were up more than 1 percent through most of the session. Despite Friday’s gains, the S&P posted its largest weekly percentage drop since mid-March.

The industrial sector of the S&P 500 (.GSPI), which could benefit from a slide in commodity prices, was the session’s best performer with a 0.77 percent advance.

Fluor Corp (FLR.N), the largest publicly traded U.S. engineering company, was the top percentage gainer on the S&P 500 after it posted a small increase in quarterly profit that beat analysts’ estimates. Its shares jumped 7.9 percent to $70.87.

The Dow Jones industrial average (.DJI) gained 54.64 points, or 0.43 percent, to 12,638.81. The Standard & Poor’s 500 (.SPX) added 5.10 points, or 0.38 percent, to 1,340.20. The Nasdaq Composite (.IXIC) rose 12.84 points, or 0.46 percent, to 2,827.56.

For the week the Dow lost 1.3 percent, the S&P fell 1.7 percent and the Nasdaq Composite dropped 1.6 percent.

The S&P 500 held above important technical levels with the week’s low just below 1,330 and Friday’s close above 1,340.

“On a weekly basis this 1,330 area is a very good support for stocks,” MF Global’s Kalivas said.

“If you were to work below that, it would question the breakout we saw last week. We’re in a battle zone here and next week is going to decide the fate” of the market, he said.

Still, the CBOE volatility index . rose 1.1 percent to 18.40, its highest closing level since March 28. The gauge rose 24.7 percent this week, its biggest weekly percentage gain in almost a year. A rise in the VIX means investors will pay more for protection against their equities exposure.

Friday marked the one-year anniversary of Wall Street’s “flash crash” when nearly $1 billion was wiped off U.S. stocks in a matter of minutes before the market bounced back. The crash diminished many investors’ confidence in the market.

On Friday about 8.24 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below last year’s estimated daily average of 8.47 billion but still above the year’s daily average so far.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 2 to 1, while on the Nasdaq, about three stocks rose for every two that fell.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)

NEW YORK (Reuters) – The Dow rebounded on Wednesday with a jump in IBM’s stock on its 2015 outlook, but the Nasdaq fell as a weaker-than-expected earnings target from Texas Instruments (TXN.N) weighed on the chip sector.

Rising oil prices dragged on the broader market on the two-year anniversary of stocks’ bull run from the S&P 500′s 12-1/2-year closing low of 676.53, which was sparked by the financial crisis.

The Dow bounced back from a session low and reclaimed a slim gain as buyers snapped up shares of International Business Machines Corp (IBM.N), driving it up 2.7 percent to $166.59. Earlier, IBM climbed to an intraday high of $167.72 after a host of analysts raised their target price on the stock. A day earlier, the tech giant reaffirmed its 2015 earnings target.

But the Nasdaq couldn’t overcome the drag from the chip makers, with an index of semiconductor shares (.SOX) down 2.3 percent and trading below its 50-day moving average in another sign of weakness for the sector.

Texas Instruments shares fell 2.7 percent to $34.87, a day after the company gave a current-quarter earnings estimate below Wall Street’s estimates.

Tech shares also felt the weight of Finisar Corp (FNSR.O), which plummeted 36.1 percent to $25.62 after the network equipment maker forecast a dismal fourth quarter, blaming an inventory pile-up by telecommunications equipment makers in China.

Techs “are losing steam … there’s some movement going on in the space that’s affecting the market,” said Giri Cherukuri, head trader at OakBrook Investments LLC, which oversees $1.3 billion in Lisle, Illinois.

“Several names that have run up a lot are coming down,” he said.

Finisar is still up 100 percent since the start of September.

Oil prices resumed their upward trend, reinforcing worries that high energy costs could dampen economic growth.

The Dow Jones industrial average (.DJI) was up 5.56 points, or 0.05 percent, at 12,219.94. But The Standard & Poor’s 500 Index (.SPX) was down 2.34 points, or 0.18 percent, at 1,319.48. The Nasdaq Composite Index (.IXIC) was down 15.14 points, or 0.55 percent, at 2,750.63.

Brent crude gained $2.65 to $115.71 a barrel.

Libyan forces loyal to Muammar Gaddafi surrounded rebels in the western city of Zawiyah with tanks and snipers in the main square, witnesses said.

In Portugal, the government’s two-year cost of borrowing hit the highest level since it joined the euro in a bond auction on Wednesday, and an official said yields were unsustainable in the long run without Europe-wide action.

(Reporting by Caroline Valetkevitch; Editing by Jan Paschal)

NEW YORK – Stocks posted small gains Thursday after Federal Reserve chairman Ben Bernanke said the central bank will stick to its efforts to spur the economy.

In a speech at the National Press Club, Bernanke said that the Fed expects the economy to improve this year and inflation to remain low despite the jump in commodity prices.

“Chairman Bernanke basically indicated in his speech that he considers unemployment to be the bigger problem than inflation and that the Fed will continue to focus on that,” said Doug Roberts, chief market strategist at Channel Capital Research.

The Federal Reserve has a plan to buy $600 billion in bonds, a tactic known as quantitative easing, aimed at spurring lending and making stock ownership more attractive. Some economists had worried that the Fed could end its bond purchases earlier than anticipated.

Stocks had fallen for the most of the day as concerns over violent protests in Egypt weighed against better-than-expected economic news in the U.S.

Clashes continued in Egypt between pro- and anti-government demonstrators, leaving some analysts worried about the stability of the Middle East and the unrest’s impact on oil-rich countries throughout the region, such as Saudi Arabia.

“That’s the fear,” said Peter Cardillo, chief market economist at Avalon Partners.

But better-than-expected January sales figures sent shares in retail companies higher. Consumer-discretionary companies in the Standard and Poor’s 500-stock index gained 1.2 percent after national chains reported that sales were nearly double what analysts had forecast despite heavy snowstorms in much of the nation.

Shares in the consumer-discretionary companies were the best performers among the 10 company groups that make up the S&P index. Industrials companies were the only group to fall.

Costco Wholesale Corp., Nordstrom Inc. and Gap Inc. all gained more than 4 percent.

The S&P 500 — the benchmark for most U.S. mutual funds — gained 3.07 points, or 0.2 percent, to close at 1,307.10. The Dow Jones industrial average rose 20.29 points, or 0.2 percent, to 12,062.26. The Nasdaq composite rose 4.32 points, or 0.2 percent, to 2,753.88.

Among the positive economic reports, the Labor Department said Thursday that fewer people applied for unemployment benefits last week. A separate report showed that worker productivity in December rose by its largest amount since 2002. Economists say many employers have reached the limit in terms of how much work they can squeeze from their employees.

The Commerce Department said that factory orders rose in December, the fifth gain in six months.

Drugmaker Merck & Co. fell 2.7 percent after it issued a full-year profit forecast that was lower than analysts had expected. The company was the worst performer among the 30 stocks that make up the Dow average.

Warehouse club operator BJ’s Wholesale Club Inc. rose 12 percent after it said it is considering selling itself after months of buyout speculation.

The better economic news pushed Treasury prices lower. The yield on the 10-year Treasury note rose to 3.55 percent from 3.48 percent late Wednesday. Bond prices move in the opposite direction of their yields.

NEW YORK – A small drop in unemployment claims and a higher profit forecast by FedEx Corp. helped push stocks to two-year highs Thursday.

The Labor Department said first-time claims for unemployment benefits fell last week to 420,000, the third drop in four weeks. The four-week average of claims also slid for the sixth straight week, reaching the lowest level since July 2008. That was before Lehman Brothers collapsed and markets seized up at the height of the financial crisis.

Separately, the Commerce Department said housing starts rose slightly last month, reversing a two-month decline.

Card companies fell sharply after the Federal Reserve proposed as 12-cent cap on the fees that merchants pay every time a customer uses a debit card. Merchants now pay a fee that ranges between 1 to 2 percent of each transaction.

The proposal could cut revenues for major banks and card networks like Visa Inc. and MasterCard Inc. Visa fell 12.7 percent to $67.19. MasterCard fell 10.3 percent to $223.49.

FedEx Corp. rose 1.9 percent to $94.22 after the company raised its earnings predictions for next year because businesses and consumers are shipping more packages. Traders took that as a sign the economy is improving.

The Dow Jones industrial average rose 41.78, or 0.4 percent, to 11,499.25. The broader Standard & Poor’s 500 index rose 7.64, or 0.6 percent, to 1,242.87. The Nasdaq composite rose 20.09, or 0.8, to 2,637.31.

Gains came across the market. All 10 company groups in the Standard and Poor’s 500 index rose.

Alcoa Inc. was the biggest gainer of the 30 stocks that make up the Dow index, rising 3.5 percent to $14.45. American Express Co. fell the most. The company lost 3.4 percent to $44.57.

Stocks have had a strong December. The Dow index has gained 4.5 over the last month. The S&P 500 has risen 5.3 percent.

A bill to extend Bush-era tax cuts along with unemployment benefits was postponed by the House of Representatives Thursday afternoon. The Senate passed the bill Wednesday. The tax package, a compromise between the White House and Senate Republicans, is expected to boost economic growth next year but also widen the budget deficit.

House Democratic leaders say they’ll pass the bill, but only after first voting whether to raise the proposed rate for the estate tax.

The yield on the 10-year Treasury fell to 3.42 percent from 3.53 percent the day before. Investors have been selling Treasurys as their outlook on the economy improves, sending yields on the bonds higher. The 10-year yield traded as low as 2.49 percent as recently as Nov. 4.

The dollar fell 0.2 percent against an index of six heavily traded currencies. Gold fell 1.1 percent.

Two stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 4.4 billion shares.

NEW YORK (Reuters) – Stocks fell in a choppy session on Tuesday but showed resilience in the face of Europe’s debt crisis, recovering some of their losses on more encouraging signs from the U.S. economy.

The euro zone’s troubles showed no signs of abating as news that Portugal could be downgraded reignited selling in a high-volume flurry at the close.

Earlier, the S&P 500 had erased much of a 1 percent loss after improved consumer confidence and manufacturing data.

With Europe engaged in ad hoc crisis management for much of the year, investors are torn between that and signs of U.S. economic strength and below-average equity valuations.

“You do have a bit of a tug of war between those investors who see the environment as positive for equities over the intermediate to long-term (and) traders who are more concerned about the short-term impact of European debt concerns,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Consumer discretionary stocks were among the better performers after the Conference Board reported U.S. consumer confidence rose to its highest level in five months. Retailer Gap Inc (GPS.N) rose 3.1 percent to $21.36, while Tiffany & Co (TIF.N) added 2.4 percent to

$62.10.

Improved consumer sentiment as well as stronger U.S. Midwest business activity are the latest in a series of reports that have made investors more optimistic before Friday’s November unemployment report and as the holiday spending season gets under way.

“I think we’ll see a rally into year-end,” said Ghriskey, who is expecting the S&P 500 to rise to 1,225 by year-end.

In another tailwind for stocks, U.S. President Barack Obama said he would attempt to negotiate a deal with Republicans on tax policy in the coming days, potentially opening the way for an extension to breaks on capital gains and dividend taxes.

The Dow Jones industrial average (.DJI) dropped 46.47 points, or 0.42 percent, to 11,006.02. The Standard & Poor’s 500 Index (.SPX) fell 7.21 points, or 0.61 percent, to 1,180.55. The Nasdaq Composite Index (.IXIC) lost 26.99 points, or 1.07 percent, to 2,498.23.

Global investors increased their exposure to equities in November despite weaknesses on many bourses, while U.S. and British fund managers stepped away from crisis-hit euro-zone bonds, a Reuters asset allocation poll found.

However, reflecting investors’ fear over short-term uncertainty, the CBOE Volatility Index, or VIX (.VIX), rose 9.3 percent to 23.54.

Investors pushed the euro lower and spreads on bonds of peripheral member states to new highs amid concerns they may ultimately be forced to default.

Amid the economic reports, the S&P/Case-Shiller home prices data was a fly in the ointment. Monthly prices fell more than expected in September and prices from a year earlier rose more slowly than forecast.

But in a sign that investors may have grown too bearish on the sector, the Dow Jones U.S. home construction index (.DJUSHB) edged up 0.9 percent after closing Monday at its lowest since July 2009. The index is down 13.2 percent this year.

Google Inc (GOOG.O) weighed on the Nasdaq index following media reports that it is close to a deal to buy local advertising website Groupon Inc in what could be the Internet company’s biggest acquisition to date. Google shares fell 4.5 percent to $555.71.

Declining stocks beat advancers by a ratio of almost 2 to 1 on the New York Stock Exchange, and by just over 2 to 1 on the Nasdaq.

About 8.72 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above the year-to-date average of about 8.48 billion.

(Reporting by Edward Krudy; Editing by Jan Paschal)

NEW YORK – Google’s upbeat earnings report sent technology stocks higher Friday, while the rest of the stock market lagged on concerns about banks’ foreclosure problems.

The tech-focused Nasdaq composite index rose more than 1 percent with a boost from Google Inc.’s 11 percent gain. While all three major market indexes rose for the week, the Nasdaq’s 2.7 percent jump more than doubled the performance of other measures.

Stocks across the board initially rose after Federal Reserve Chairman Ben Bernanke reiterated that the central bank is ready to do more to stimulate the economy. Bernanke’s comments were the latest confirmation the central bank is about to step up its purchase of Treasury bonds to spark growth.

But that burst of optimism couldn’t fully overcome worries about how banks like Bank of America Corp. and JPMorgan Chase & Co. handled the foreclosure process on mortgages. Both banks, along with General Electric Co., were the primary culprits in sending the Dow Jones industrial average down more than 30 points.

“The market is not going to continue to rally if financials accelerate to the downside,” said Maier Tarlow, a managing director at Raven Securities. “It’s a major roadblock.”

A small drop in the University of Michigan/Reuters consumer sentiment survey countered reports of growth in retail sales and manufacturing activity in New York.

Economists polled by Thomson Reuters expected the preliminary reading on October consumer sentiment to rise slightly. Retail sales climbed in September by more than economists had forecast. Manufacturing activity in New York surged in October and pointed to continued expansion in the coming months.

The Dow fell 31.79, or 0.3 percent, to 11,062.78. It had been up as much as 47 points shortly after the opening bell. It was up 0.5 percent for the week.

The Standard & Poor’s 500 index rose 2.38, or 0.2 percent, to 1,176.19. It was up 1 percent for the week.

The Nasdaq jumped 33.39, or 1.4 percent, to 2,468.77. It was up 2.8 percent for the week. Tech stocks got a lift from Google’s 32 percent jump in third-quarter earnings. The Internet search company’s results were well above analyst’s estimates. The company reported big gains in advertising revenue.

The Fed has hinted in recent weeks it would resume a program it ran during the recession to stimulate the economy. Bernanke’s comments Friday were the most definitive proclamation yet that the Fed would act. However, he cautioned the central bank is still trying to figure out how big the bond purchase program should be.

Anthony Chan, chief economist at J.P.Morgan Private Wealth Management, said Bernanke successfully walked a fine line Friday between maintaining market enthusiasm over the expected program and avoiding upsetting other Fed board members who might have differing opinions.

The program would likely be aimed at driving interest rates down from already low levels in an effort to spark borrowing and spending by companies and consumers.

More spending, in turn, could lift corporate sales and lead to more jobs. High unemployment remains one of the biggest drags on the economy.

Stocks have been rallying in recent weeks in anticipation the Fed would announce a firm plan at its next meeting, which ends Nov. 3. Lower rates have helped stocks because it drives down yields on Treasury bonds. That makes stocks and other riskier investments like commodities more attractive.

“The Federal Reserve has basically put a floor in the market,” said Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management.

Any action by the Fed could have the dual effect of increasing inflation. Bernanke said inflation still remains too low by historical standards. If rates drop and borrowing and spending pick up, prices would rise.

The government said Friday that the consumer price index, a measure of inflation at the retail level, rose just 0.1 percent last month. Prices were flat excluding volatile food and energy costs.

Bond prices were trading in a tight range after Bernanke’s speech. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.57 percent from 2.51 percent late Thursday. Its yield is helped to set interest rates on mortgages and other consumer loans.

Bank of America shares fell 62 cents, or 4.92 percent, to $11.98, while JPMorgan Chase dropped $1.57, or 4.1 percent, to $37.15. GE fell 86 cents, or 5 percent, to $16.30.

Google shares jumped $60.52, or 11.12 percent, to $601.45.

Consolidated volume on the New York Stock Exchange came to 5.8 billion shares, compared to 5.3 billion Thursday. Losing stocks were ahead of gainers by 3 to 2.