NEW YORK -- Investors marked the last trading day of 2005 Friday with the same conundrum they faced all year - trying to find a good reason to buy stocks and coming up short. Stocks fell to their December lows, and the Dow Jones industrials finished the year with a loss.
With little news to spur buying, stocks fell as investors consolidated their meager profits on the year. As a result, the Dow suffered its first down year since 2002, although the other major indexes posted modest gains for 2005.
This year was marked by skyrocketing energy prices, a slowing economy, hot-and-cold inflation threats and the Federal Reserve steadily raising interest rates - all of which made investors nervous over the state of the economy and kept stocks volatile but ultimately little changed since the end of 2004.
Looking ahead, investors hope the Fed will stop raising rates as early as possible in 2006 to avoid slowing the economy unnecessarily, and nervousness on this point has kept stocks in check through December.
"It's really the Fed at this point that's kept the market in check," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. "The historic conversation between the Fed and the markets has become a bit of an argument over whether there's really inflation, and whether we need those rate hikes."
According to preliminary calculations, the Dow fell 67.32, or 0.62 percent, to 10,717.50. The Dow needed to remain above 10,783.01 for a positive 2005.
Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 6.13, or 0.49 percent, to 1,248.29, and the Nasdaq composite index fell 12.84, or 0.58 percent, to 2,205.32.
Bonds moved lower in volatile trading, with the yield on the 10-year Treasury note rising to 4.39 percent from 4.36 percent late Thursday. The inversion of the yield curve this week - with two-year bonds now yielding more than the 10-year - pressured stocks, as many on Wall Street feel that such an inversion augurs a slower economy and a possible recession.
The dollar rose against most major currencies, while gold prices also moved higher.