"Equity markets have exhibited huge price swings this past week, with implied volatility soaring to new highs," said UBS chief economist Larry Hatheway. "The week's sharp gyrations in global equity markets also underscore the tension between dismal earnings prospects and ostensibly cheap valuations," he added.

Stocks started Friday in negative territory, then spent most of the day higher despite some gloomy economic news: A much worse-than-expected reading on new-home construction activity in September and a sharp drop in a key consumer sentiment gauge in October. Then, in the last hour of trading, stocks bounced into negative territory again.

On Friday, the Dow Jones industrial average ended down 127.04 points, or 1.41%, to 8,852.22. The S&P 500 index fell 5,88 points, or 0.62%, to 940.55. The tech-heavy Nasdaq composite index was off 6.42 points, or 0.37%, to 1,711.29.

On the New York Stock Exchange, 17 stocks moved higher for every 14 losing ground. On the Nasdaq, the ratio was 16 to 12 negative.

Bonds finished mixed, while the dollar index rose and gold futures lost ground. Oil futures rebounded to above $70.

On Friday, President Bush, in a speech on the U.S. economy Friday, said that the credit market will take a while to thaw, but that Americans should be confident that it will.

Also, shares of technology titans Google (GOOG) were higher on positive earnings news.

Despite Friday's decline, major indexes ended the week higher, with the Dow up 4.75%, or 401 points, and the S&P 500 rising 4.6%. Those solid gains belie the market's huge price swings from day to day and even from hour to hour. On Monday, the Dow surged 11.1%, or 936.42, the best percentage rise in the index since the early 1930s. On Wednesday, Oct. 15, the Dow fell 7.87%, the steepest daily drop since 1987.

But this week was a big improvement over previous weeks. In fact, it was the first weekly rise in major indexes in five weeks. Last week, the week ending Oct. 10, the Dow fell 18.15%, the index's worst week ever, while the S&P 500 fell 18.2%, its second worst week ever.

Economic data remains the market's No. 1 concern. On Friday, a report showed that U.S. housing starts dropped 6.3% to a 817,000 unit annual rate in September, and a 17 year low. Starts are down from a downwardly revised 872,000 pace [895,000 previously] and well below the 875,000 expected. Starts are down 31.1% over last year. Building permits plunged 8.3% to a 786,000 pace from a 857,000 pace before. They are down 38.4% over last year. Single family starts fell 12.0%. Multi-family starts rebounded 7.5%, though remains hard to read given the large distortions in June from a change in New York City building codes.

"The data are weaker than expected, to increase fears of a harder landing than earlier expected," says S&P senior economist Beth Ann Bovino.

The University of Michigan's U.S. October consumer sentiment index dropped to 57.5 from 70.3 in September, much weaker than the 65.0 reading that markets expected. Current conditions plunged to 58.9 from 75.0. The future outlook index fell to 56.7 from 67.2. The 1-year ahead inflation index rose to 4.5% from 4.3%.

Good news from tech bellwethers counteracted the gloom somewhat. After the close of trading Thursday, Google posted third-quarter EPS of $4.24, vs. $3.38 one year earlier, on a 31% revenue rise. The company posted $4.92 third quarter 2008 non-GAAP EPS.

IBM (IBM) reported third-quarter EPS of $2.05, vs. $1.68 one year earlier, on a 5% revenue rise. Results were in-line with Big Blue's preannouncement last week.

Investor Warren Buffett wrote in The New York Times that he's buying U.S. stocks for his personal account, offering the truism: "Be fearful when others are greedy and greedy when others are fearful."

Shares of BHP Billiton (BHP) and other miners were seen falling in price Friday as metal commodity prices fell and on reports that hedge funds are being forced to sell assets, which include their built-up holdings of commodities, such as gold and other metal-related assets.

In other U.S. markets Friday, the 10-year Treasury note rose 12/32 to 100-21/32 for a yield of 3.92%, while the 30-year bond slid 29/32 to 103-08/32 for a yield of 4.30%. "The lack of powerful moves today also reflected caution ahead of the weekend, in particular since news has come out over the past few weekends relating to the financial crisis and the government's efforts to tackle it," said S&P's MarketScope.

Energy prices bounced back from 13-month lows Friday morning with November West Texas Intermediate crude oil futures up $2.20 to $72.05 per barrel amid speculation that OPEC will announce production cuts at its emergency meeting that is scheduled for Oct. 24 [moved up from originally scheduled Nov. 18]. Talk is that market participants expect OPEC to cut output by at least 1 million barrels a day.

December gold futures fell $19.10 to $785.40 per ounce, extending losses from Thursday. There were reports of some further hedge fund selling of commodities and an Eastern European account selling sizeable amounts of gold, according to Action Economics.

London, Paris, and Frankfurt stocks were higher Friday morning after a sharp sell-off Thursday. Tokyo stocks rose 2.78%, Hong Kong fell 4.44%, while Shanghai rose 1.08%.

Among Friday's other stocks in the news, Schlumberger (SLB) reported third-quarter EPS of $1.25, vs. $1.09 one year earlier, on a 22% revenue rise. Wall Street was looking for $1.25. The company notes that the overall impact of the hurricane season on its results was estimated at 4 cents per share; without this effect, EPS would have been $1.29.

Honeywell International (HON) posted third-quarter EPS of 97 cents, vs. 81 cents one year earlier, on a 6.2% revenue rise. The company sees 2008 sales of $37.2 billion, up 8%; it narrowed its EPS guidance range to $3.76-$3.80, up 19%-20% vs. the prior year.

Advanced Micro Devices (AMD) posted a third-quarter loss of 11 cents per share, vs. a 71 cents loss [both GAAP] one year earlier, on a 32% revenue rise. AMD posted 7 cents EPS from continuing operations in the current quarter. Wall Street was looking for a loss of 40 cents. In light of the current macroeconomic conditions, AMD expects fourth-quarter revenue to be roughly flat compared to to the third quarter.

A service of YellowBrix, Inc.