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Nasdaq closes November with 2.7% gain; Dow and S&P rise 1.2% and 1.6%

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NEW YORK (MarketWatch) -- U.S. stocks closed little changed on the day but sharply higher on the month Thursday, after a session featuring early weakness caused by soft economic data and disappointing retail sales as well as a late-session spurt of buying.

Throughout most of the day stocks were lower after a Chicago-region manufacturing survey showed contraction in November. A weak outlook from Wal-Mart Stores Inc. (WMT) , crude oil prices close to $63, and a continued slide in the dollar also weighed.

The Dow Jones Industrial Average ($INDU) closed down just 4.80 points at 12,221.93, after rebounding from an intraday low of 12,162. For November, the Dow rose 1.2%

Pfizer Inc. (PFE) provided support for the Dow, gaining 1.6% after raising its earnings outlook for 2006.

It helped offset the impact of Wal-Mart (WMT) , which dropped 1.7% after forecasting that December same-store sales will be flat to up 0.1% in December.

General Motors Corp. (GM) , another Dow component, dropped 0.9% on news that billionaire investor Kirk Kerkorian's Tracinda investment vehicle will sell another 14 million shares of the company's stock.

The S&P 500 ($SPX) rose 1.17 point to 1,400.65, while the Nasdaq Composite (COMP) lost just 0.46 point to end at 2,431.77. For the month, the S&P rose 1.6% and the Nasdaq added 2.7%

There was no real news to prompt the late session improvement in the major averages, according to Jim Awad, president of Awad Asset Management.

"It's just that there's still a lot of people still underinvested relative to how well this market has done so far this year," he said.

A strong flow of fund money, Awad said, "is seizing on the dips to put money to work in this market as it tries to catch up before the end of the year. This market has a lot of momentum and it's going to take more than a piece of bad news to derail it," he said.

After a mixed opening, stocks had turned lower after the release of the Chicago purchasing managers index showed a reading of 49.9% in November from 53.5% in October.

The reading is the lowest since April 2003 and surprised economists who were expecting a rise to 54.4%

Readings below 50 indicate contraction in the region, raising concern that a national survey on manufacturing this Friday might also show contraction.

"This was just another piece of bad news for the market today," said Art Hogan, chief market strategist at Jefferies & Co.

Retail picture:

Besides Wal-Mart, retailers posted disappointing same-store sales results for November on Thursday.

Investors have been closely monitoring consumption to see whether reduced wealth from a fast-falling housing market is pinching consumers' wallets.

"The big question is whether the consumer is still spending, and how much the consumer is spending," Hogan said.
"So far, it's not outstanding," he said, adding that "same store sales were lighter than we'd like to see."

JC Penney Co. Inc. (JCP) , forecast to be a big winner, disappointed hugely with a 1.4% increase compared with the 3.7% average estimate. The stock dropped 2.8%

The Gap Inc. (GPS) fell 1.8% after the retailer said same-store sales dropped 8% in November, prompting broker Lazard Capital to downgrade the stock to hold from buy.

Costco Wholesale Corp. (COST) lost 2% after saying sales were 5% higher, missing the 5.8% average increase expected by analysts surveyed by Thomson First Call.

Trading volume was 1.971 billion shares on the New York Stock Exchange and 2.107 billion on the Nasdaq.

By sector, precious metals miners ($XAU) , semiconductor issues ($SOX) and technology stocks ($TXX) were strong, while transportation ($TRAN) and banks ($BKX) were weak.

Earlier economic data had pointed both to higher-than-expected inflation pressures and slowing growth.

The market is hoping that the Federal Reserve will cut interest rates early next year to stave off a housing-led economic slowdown. But that scenario might be delayed if the Fed perceives inflation remains too much of a risk.

Core inflation, as measured by the core personal consumption expenditure index, rose at a faster than expected 0.2%, keeping the year-over-year rate at 2.4%, above the Fed's implied cap of 2%
However, weekly unemployment figures rose more than expected, which should temper wage pressures on inflation.

The number of U.S. workers applying for jobless benefits climbed 34,000, the highest amount in more than a year last week, to 357,000, the Labor Department said.

"We'll probably continue to have a lot of volatility" until the market figures out how consumers are faring, said Jefferies' Hogan.

"Given the strong [market] gains we've seen this year, it's going to be difficult not to have strong reactions to incoming data," he said.

Meanwhile, Sam Stovall, chief investment strategist at Standard and Poor's, tells MarketWatch that concern over manufacturing growth might lead to more concern for stocks. Listen to Stovall.

"The Chicago PMI did fall to below 50," he says, "and what's important about being sub-50 is that implies the economy is contracting.

"We could be setting ourselves up for a pullback or even a possible correction," in the market, he added.

Other markets:

The dollar continued to fall sharply against major rivals, touching a 14-year low against the British pound and a fresh 20-month low against the euro.

The dollar was last down 0.7% against the yen, down 0.6% against the euro and down 1% against the British pound.

Gold rallied on the weaker dollar. Gold futures rose $11.40 to close at $646.90 an ounce.

Oil futures continued higher after bullish supply data released Wednesday. Oil for January delivery closed up 67 cents at $63.13 a barrel.

Treasuries rallied on the Chicago PMI. The 10-year note rose 15/32 to 101 9/32, yielding 4.458%, an 11-month low. See full story.

"Low bonds yields are also making stocks more attractive," said Awad, of Awad Asset Management.

Stocks in focus:

Microsoft Corp. (MSFT) , which begins shipping its next-generation Vista operating system to corporate customers on Thursday, dropped 0.7%

Heinz Co. (HNZ) rose 1% after the company posted second-quarter earnings that were below analyst forecasts.

Hot Topic Inc. (HOTT) rose 3.1% after the clothing retailer said November same-store sales dropped 4.3%, less than the 6.8% fall predicted by analysts.

TiVo Inc. (TIVO) dropped 9.2% after the digital video-recording firm predicted fourth-quarter sales below Wall Street's consensus.

Nick Godt is a MarketWatch reporter based in New York.