Stocks cut losses

Stocks retreated near midsession Friday, although not by as much as earlier in the day, as renewed recession fears were tempered by Google's earnings and bullish comments from influential investor Warren Buffett.

Treasury prices rallied, lowering the corresponding yields, and the dollar weakened against other major currencies. The credit market showed some signs of loosening, as several key lending rates declined.

The Dow Jones industrial average (INDU) lost 1% over two hours into the session after having fallen as much as 261 points in the early going. The Standard & Poor's 500 (SPX) index lost 0.7%, erasing bigger losses. The Nasdaq composite (COMP) was little changed.

The Dow rose 401 points Thursday at the end of a seesaw session that saw the blue-chip indicator fall as much as 380 points in the morning.

Early Friday, the tone was decidedly negative as investors focused on poor readings on housing and consumer sentiment. But the volatile market rebounded a little shortly after.

Home construction tumbles: Housing starts fell to a 17-year low in September, according to a government report released Friday before the market opened. Starts fell to a seasonally adjusted 817,000 in the month from 872,000 the previous month. Economists were expecting a smaller decline.

Applications for building permits, considered a good indicator of future activity, fell to a seasonally adjusted rate of 786,000 in September, down from a revised 857,000 in August. Economists were expecting a smaller decline. (Full story)

Another economic report, the University of Michigan's consumer sentiment index, fell to 57.5 in October from 70.3 at the end of October, the biggest month-over-month slide in the history of the report. Economists surveyed by Briefing.com thought it would slide to 65.

Company news: Google (GOOG, Fortune 500) reported higher-than-expected third-quarter earnings Thursday night, on revenue that was in line with forecasts. The search engine's shares rose 7% Friday morning. (Full story)

Also late Thursday, Advanced Micro Devices (AMD, Fortune 500) reported a narrower quarterly loss, while IBM (IBM, Fortune 500) reported higher profit that beat estimates, after pre-announcing the results last week. AMD shares jumped 7% while IBM shares were little changed.

In financial services news, AIG (AIG, Fortune 500) said late Thursday that it has tapped another $12 billion in emergency government funding, bringing its total to $82.9 billion as it struggles to stay afloat. AIG fell 6%. (Full story)

Among other movers, Merck (MRK, Fortune 500) gained 4% after UBS upgraded it to "neutral" from "buy," Briefing.com reported.

Bush and Buffett: President Bush, speaking early Friday, reiterated the steps that the government has taken to try to stabilize roiling financial markets. (Full story)

While investors have welcomed many of the steps the government and world banks have taken to get money flowing again, stocks have remained volatile and mostly negative. Year-to-date, the Dow, S&P and Nasdaq are all down at least 30%.

On Friday, Berkshire Hathaway (BRK.A) head honcho Warren Buffett said in a New York Times commentary that he is moving to stocks from Treasurys in his personal portfolio.

The influential investor said business activity will continue to dwindle and the economy to struggle. But the fear surrounding the economic slowdown and the credit crisis has left stocks with attractive valuations. (Full story)

Credit market: Lending rates have improved this week, as the government initiatives have started to have an impact. (Full story)

Libor, the overnight bank-to-bank lending rate, fell to 1.67% from 1.94% late Thursday, according to Bloomberg.com, a more than 4-year low. But longer-term rates have fallen more slowly. The three-month Libor, what banks charge each other to borrow for three months, fell to 4.42% from 4.50% Thursday.

Another indicator, the Libor-OIS spread, a measure of cash scarcity, fell to 3.31% from 3.39% Thursday.

The TED spread, which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays, narrowed to 3.83% from 4.11% late Thursday. The spread hit a record 4.65% last week. The wider the spread, the more reluctant banks are to lend to each other.

Credit froze up in the wake of the housing market collapse, the subsequent subprime lending fallout and contraction in the bank sector. The lack of available credit has punished the already weak economy, making it difficult for businesses to function on a daily basis and for consumers to get loans.

The Federal Reserve has made potentially trillions of dollars available to banks. Earlier this week, the U.S. government said it would invest at least $250 billion in the nation's banks as part of the $750 billion bank bailout plan.

Treasury prices were little changed, with the yield on the 10-year note at 3.97%. Treasury prices and yields move in opposite directions.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, rose modestly to 0.61% from 0.48% late Tuesday. The low yield shows investors are still willing to take a meager return on their money rather than risk the stock market.

Last month, the yield on the 3-month bill skidded to a 68-year low around 0%.

Other markets: Global markets were mixed. In Asia, Hong Kong's Hang Seng index fell 4.4%, while Japan's Nikkei gained 2.8%. European markets were mostly higher in afternoon trading there, with the London FTSE up 4.5%.

U.S. light crude oil for November delivery rose $1.19 to $71.04 a barrel on the New York Mercantile Exchange after ending the previous session at a 13-month low.

Bets that demand is slowing have sent oil prices lower since crude hit an all-time high of $147.27 a barrel on July 11. So far, instead of providing relief to investors, the decline has been seen as another indication of the global economic slowdown.

Gasoline prices fell another 4.4 cents overnight, to a national average of $3.04 a gallon, according to a survey of credit card activity by motorist group AAA. It was the 30th consecutive day that prices have decreased - in the past month alone, they're down more than 81 cents a gallon.

COMEX gold for December delivery slumped $21.50 to $783 an ounce. A variety of other commodities declined as well.

In currency trading, the dollar fell against the euro and the yen.