The stock market finished a dismal week with a mixed performance Friday as investors grappled with fears about corporate and mortgage-backed bonds.
The Dow Jones industrial average recorded a 4.4% decline for the week, its biggest weekly drop since March 2003. The Standard & Poor's 500 index and the Nasdaq composite index finished the week off 4.6% and 4.5%, respectively.
Financial stocks slid Friday as measures of corporate credit risk climbed to records. An index of bank and brokerage stocks in the S&P 500 fell 8.6% this week, its biggest weekly loss since September 2001.
Banks sitting on $160 billion of so-called leveraged loans that they can't sell may have to record more losses on them after a plunge in the value of the debt, Bank of America Corp. analysts said Friday.
"It tells you the credit crunch is intensifying," said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. "A lot of this paper is sitting on bank balance sheets. There's further potential for more write-downs, and that constricts the supply of credit in other areas."
The mortgage and credit crises have led the world's largest banks and brokerage firms to write down the value of debt and related products on their books by $146 billion since the beginning of 2007.
In addition, the market has been shaken in recent weeks by uncertainty surrounding bond insurers and whether they'll be able to handle huge drops in the value of mortgage-backed bonds they have insured. On Thursday, Moody's Investors Service lowered its rating on bond insurer Security Capital Assurance. On Friday, Fitch Ratings put a series of mortgage-backed securities insured by MBIA on review for a possible downgrade.
"The bond insurers are really on people's minds," said Kim Caughey, equity research analyst at Fort Pitt Capital Group. "This is a horribly complex issue."
If the rating firms downgrade more bonds and bond insurers, the moves could hurt the banks that own such bonds and "just drive the credit markets into a downward spiral," Caughey said.
The Dow dropped 64.87 points, or 0.5%, to 12,182.13 -- above its lows of the day but well off its highs.
Broader stock indicators were mixed. The Standard & Poor's 500 index fell 5.62 points, or 0.4%, to 1,331.29, while the Nasdaq composite index rose 11.82 points, or 0.5%, to 2,304.85.
The Russell 2,000 index of smaller companies fell 3.85 points, or 0.5%, to 698.93.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange.
Government bond yields retreated after a sharp increase Thursday. The yield on the benchmark 10-year Treasury note fell to 3.64% from 3.76% late Thursday. The dollar fell against other major currencies.
The tech-heavy Nasdaq fared better than the other indexes thanks partly to Amazon.com, whose board authorized a $1-billion share buyback. The online retailer rose $2.59, or 3.7%, to $73.50.
Among financial stocks, JPMorgan Chase lost $1.29, or 2.9%, to $43.82. Bank of America retreated $1.21, or 2.8%, to $42.16. American Express fell $1.47, or 3.2%, to $44.98.
Security Capital plunged 60 cents, or 23%, to $2 on the downgrade by Moody's. MBIA, however, rose 40 cents, or 2.8%, to $14.60 -- despite the possibility of a Fitch rating cut -- after MBIA late Thursday boosted a stock offering to $1 billion from $750 million in response to oversubscription by investors.
In other market highlights:
* McAfee surged $2.92, or 9.2%, to $34.65. The software maker posted a better-than-expected fourth-quarter profit late Thursday.
* Tiffany rose $1.68, or 4.4%, to $39.86 after forecasting an increase in profit in the current fiscal year, based on an expected 10% rise in global sales.
* Weyerhaeuser fell $2.37, or 3.7%, to $62.34. The lumber company swung to a fourth-quarter loss as the slumping housing market dampened demand for wood. The company said it expected the downturn to extend through the year.
* Overseas, key stock indexes fell 1.4% in Japan and 0.3% in France. Shares rose 1% in Britain and 0.5% in Germany.