Stocks: Second straight week of gains

Stocks managed gains for the second week in a row despite tumbling Friday, as investors pulled back after the recent run.

The Dow Jones industrial average (INDU) lost 122 points or 1.7%. However, it also managed slim gains for the week, rising for the second week in a row for the first time since last May.

The S&P 500 (SPX) index fell 15 points, or 2%. The Nasdaq composite (COMP) fell 26 points or 1.8%.

Stocks fell Friday in a quiet session, with banks and tech leading the retreat.

"We were up sharply in just over a week, so giving something back is to be expected," said Richard Campagna, chief investment officer at brokerage 300 North Capital.

Stocks fell Thursday too after gaining for six of the prior seven sessions. During that run, the S&P 500 rose 17%, as investors keyed off better-than-expected reports on housing and retail sales and some signs of stabilization in the bank sector. Investors also welcomed news Wednesday that the Federal Reserve is pumping another trillion into the economy to try to get credit flowing.

Campagna said that although some of the recent news has been "less bad," it still hasn't been good. "It's not like the world has suddenly changed."

He said that the rally was as much a function of an oversold market as anything else. The gains followed a 28% decline for the S&P 500 that left the benchmark index at a 12-1/2 year low.

The S&P 500 topped 800 both Wednesday and Thursday and that will likely prove to be a key technical level to watch in the weeks ahead, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

"The Fed did what the market wanted on Wednesday, but now we need more leadership coming from Washington," Detrick said. "We need to know more about Geithner's plan for stabilizing the bank sector."

Friday was also the quarterly options exchange, when stock index futures and options and individual stock futures and options all expire at the same time. The process can lead to gyrations in the prices of the underlying stocks.

Detrick said that stocks might see a retreat next week in that the week after a quadruple options exchange has proven to be bearish for the market in recent years.

Economy: Federal Reserve Chairman Ben Bernanke, speaking before a group of community bankers in Phoenix, defended the need to bail out banks seen as "too big to fail," such as AIG. However, he noted that it is an enormous problem that must be addressed.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, also spoke before the same industry group. She said that more regulation is needed to solve the banking crisis. (Full story)

Separately, the government reported that there were 2,769 mass layoffs in February, resulting in 295,477 job cuts. A mass layoff involve 50 or more job cuts at the same time. In January, there were 2,227 mass layoffs.

AIG: The troubled insurer remained in focus after the House of Representatives on Thursday voted to impose a steep tax on large employee bonuses at firms that accepted government bailout money.

The legislation was created in response to the public outcry after AIG (AIG, Fortune 500) handed out over $165 million in bonuses to executives after it accepted more than $170 billion in federal bailout money.

In an interview with CNN Thursday, Treasury Secretary Timothy Geithner said his department was responsible for a provision in the $787 billion stimulus package that allowed AIG and other companies to award bonuses.

AIG shares fell 22% Friday. Other financial stocks falling included Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), Wells Fargo (WFC, Fortune 500), Morgan Stanley (MS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500). The KBW Bank (BKX) index fell 5%.

Company news: LM Ericsson (ERIC) warned that it will post a loss in the first quarter due to weaker consumer demand for its phones amid the global financial crisis. Shares fell 10.6%.

Also in the telecom space, Palm (PALM) reported a wider quarterly loss and weaker sales late Thursday that missed analysts' estimates.Despite the loss, shares gained 2%.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by nearly three to one on volume of 2.47 billion shares. On the Nasdaq, decliners beat advancers two to one on volume of 2.52 billion shares.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 2.63% from 2.60% Thursday. Treasury prices and yields move in opposite directions.

Lending rates improved. The 3-month Libor rate fell to 1.22% from 1.23% Thursday, while the overnight Libor rate dipped to 0.28% from 0.3% Thursday, according to Bloomberg.com. Libor is a bank-to-bank lending rate.
0:00 /02:39Life in the pits

Other markets: In global trading, Asian markets tumbled and European markets ended higher.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for April delivery, which expires on Friday, settled down 55 cents to $51.06 a barrel on the New York Mercantile.

COMEX gold for April delivery fell $2.60 to settle at $956.20 an ounce.