Stocks drop as traders find little reason to buy

NEW YORK -- Investors sold stocks Friday, further chilling the market's spring rally.

Stocks fluctuated in the early going on more signs that the economy's slide is slowing. But most advances eroded by the afternoon as traders accustomed to economic news being "less bad" found little incentive to buy.

According to preliminary calculations, the Dow Jones industrial average fell 62.68, or 0.75%, to 8,268.64. The broader Standard & Poor's 500 index dropped 10.20, or 1.1%, to 882.87, and the Nasdaq composite index slipped 9.07, or 0.5%, to 1,680.14.

Trading was choppy with the expiration of options contracts occurring Friday.

With the market still up than 30% from the 12-years lows of two months ago, many traders saw it as a safer bet to cash in some of the gains.

The Labor Department said consumer price index in April was flat, as economists predicted. And New York-area manufacturing activity and industrial production contracted less than economists expected. They also shrank significantly less than they did earlier in the year, fitting a trend seen in most data since early March: that the economy continues to slide, but at a slower pace.

A Reuters/University of Michigan index of consumer sentiment rose to an eight-month high in May. The improvement is a good sign as sentiment rebounds from a low in November. Increased confidence could translate to improved consumer spending.

Traders remained cautious ahead of several reports expected next week on housing, one of the economy's weak spots. And on Friday European countries reported on a massive 2.5% contraction in the first quarter.

Wall Street's huge spring rally has hit a lull. The government's stress tests of banks are done, earnings reports are winding down and the first wave of April economic data have been released. Investors are growing concerned that perhaps they got too optimistic when they saw signs of the economy bottoming.

"We've gotten through the panic point, and what will get us to the next level is seeing the economy actually grow. It'll happen, but it's a matter of when," Douglas Kreps, managing director at Fort Pitt Capital Group.