Mixed Economic Signals Interrupt Stock Rally

Stocks drifted lower on Friday, as a surprisingly strong reading on May factory orders called into question a hoped-for interest rate cut and sent bond prices lower.

The Dow Jones industrial average declined 3.80 to 4,585.84, after recovering most of a 17-point loss posted early in the session.

The blue-chip index still managed a gain of 75.05 for the week and closed a hair below its all-time closing high of 4,589.64, posted on Thursday.

Declining issues led advancers by more than 3 to 2 on the New York Stock Exchange. Volume on the Big Board was moderate at 318.49 million shares as of 4 p.m., compared with 420.96 million on Thursday.

Stocks stumbled early along with bonds, after the Commerce Department said that orders to U.S. factories for big-ticket durable goods surged 2.5 percent in May.

That was the first advance in four months and the biggest jump since last November. Economists had expected the number to be flat.

Initially, the data threw cold water on investors’ hopes that the economy was slowing fast enough to warrant an interest-rate cut by the Federal Reserve. Stocks had been firm all week on the hopes that the Fed would ease as soon as July 5, the start of its next policy meeting.

Some of the stocks that moved substantially Friday:

NYSE

Kimberly-Clark rose 2 1/4 to 64 1/2.

Scott Paper rose 1 1/8 to 48.

The two companies are discussing a $7 billion, stock-swap merger, The Wall Street Journal reports.

Masco Corp. fell 1/4 to 25 3/4.

The building and home-improvement supplies maker said late Thursday that its second-quarter net income would be 10 to 15 percent below a year ago. Masco cited a slowdown in consumer spending and housing activity.

USAir Group fell 7/8 to 12 1/2.

The company was rumored to be targeting TWA and Hawaiian Airlines for possible acquisition. USAir denied the rumor.

NASDAQ

Lincare Holdings fell 11-16 to 27 1-16.

The company said late Thursday that it would indefinitely postpone a shareholder vote on a proposed merger with Coram, citing Coram’s request for additional information from Lincare. Coram said Friday morning that it would provide the information, adding that it would “work diligently toward consummation of the merger.” Coram stock was down 1 3/8 on the Big Board.

Adobe Systems fell 4 3/8 to 61 1/8.

Frame Technology rose 3 1/8 to 29 7/8.

Some analysts said Adobe’s proposed $500 million stock-swap merger with Frame Technology was too expensive to Adobe, and the deal was seen getting close scrutiny from government antitrust regulators. Also, Adobe announced secondquarter earnings of 51 cents a share, up from 28 cents a year ago but only on target, and not above, analysts’ expectations.

AMEX

Hawaiian Airlines rose 6 1/8 to 13 1/2.

The American Stock Exchange halted trading in the stock to investigate its recent volatility and then halted new margin purchases of the shares. Hawaiian Airlines and TWA were rumored to be possible acquisition targets of USAir Group, but USAir denied the rumors.