By Nick Godt, MarketWatch
NEW YORK (MarketWatch) -- U.S. stock indexes logged gains of over a percent for the week, with the Dow scraping out a third record high close on Friday amid otherwise mixed markets as investors consolidated gains ahead of a three-day weekend.
But keeping a lid on gains overall were data that suggested economic weakness, including a big drop in housing starts, falling consumer confidence and a cautious outlook from Microsoft Corp. Markets will be closed Monday for Presidents' Day.
"The market is overdue for some profit-taking or, at least, a period of consolidation," said Michael Sheldon, market strategist at Spencer Clarke. "Today's action is not surprising."
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.13% closed up 2.56 points at 12,767.57, gaining 1.5% for the week. Among Dow components, Microsoft /zigman2/quotes/207732364/composite MSFT +0.64% fell 2.7%. CEO Steve Ballmer said some analyst sales forecasts for Vista, its new operating system, might be too high.
And Honeywell Inc. /zigman2/quotes/205583690/composite HON +0.83% rose 0.6% as it announced a new $3 billion stock repurchase program.
Meanwhile, General Motors Corp. /zigman2/quotes/205226835/composite GM -0.88% fell 0.3% following a report in the industry publication Automotive News that GM is in talks to acquire struggling rival Chrysler Group from its current owner, DaimlerChrysler AG . DaimlerChrysler jumped 4.4%.
The S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.24% dipped 1.27 points to 1,455.54, but added 1.2% for the week, while the tech-heavy Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.92% fell 0.79 points to 2,496.31 but gained 1.5% for the week.
Trading volumes were 1.35 billion on the New York Stock Exchange and 1.918 billion on the Nasdaq stock market. Declining issues and gainers were in roughly equal balance on the NYSE while gainers outpaced decliners 4 to 3 on the Nasdaq.
The producer price index fell 0.6% last month, while the core PPI, which excludes food and energy prices, rose 0.2%, with both numbers in line with expectations. See full story.
Inflation has been on investors' minds the whole week, after Federal Reserve Chairman Ben Bernanke said that while inflation pressures were likely ebbing, the Fed would keep an eye on incoming data.
But on Friday, the surprise for the market came from housing starts, which plunged 14.3% to a 10-year low in January. See full story. The market has been betting that the housing market has stabilized, allowing for the economy to still grow while inflation recedes.
Homebuilding stocks /zigman2/quotes/210598346/realtime HGX -0.22% took a beating, led by big declines in shares of Hovnanian Enterprises /zigman2/quotes/203952761/composite HOV -2.12% , Champion Enterprises /zigman2/quotes/221320035/composite CHB +0.27% , as well as star homebuilders KB Home /zigman2/quotes/206220859/composite KBH -0.78% and Toll Brothers /zigman2/quotes/201912487/composite TOL +0.02% .
By sector, real estate investment trusts , metals miners /zigman2/quotes/210598348/realtime XAU +0.57% and computer-related stocks led the declines, while banks , natural gas and telecoms advanced.
News that consumer confidence fell more than expected last month also weighed on the market See full story..
Still, the market's overall lackluster response to the housing news suggests that "the inflation data may have overshadowed the housing data news," said Peter Cardillo, chief market economist at Avalon Partners. "The [PPI] confirms what Bernanke has been saying."