US stock market players hope for a rebound in the first week of 2006 after 2005 drew to a gloomy close for the blue chip Dow average.
Over the past week, the Dow Jones Industrial Average lost 1.52 percent to close at 10,717.50, losing value over the course of the full year for the first time since 2002.
The tech-rich Nasdaq slipped 1.96 percent over the week to 2,205.32, but unlike the Dow managed to finish 2005 in positive territory.
The broader Standard and Poor's 500 benchmark declined 1.61 percent from the previous week to 1,248.29 points, but also managed to stay up over the year.
Despite 2005's weak close, many were still optimistic about 2006's prospects.
"The near-term pattern on the Dow, S and P 500 and Nasdaq suggests that further pullbacks are a distinct possibility," said Morgan Stanley technical strategist Mark Newton.
He said that recent market weakness has been relatively contained, considering November's strong rise, "which leaves the overall monthly trend still quite bullish".
Phil Dow, director of equity research at RBC Dain Rauscher, said that while the Dow failed to gain traction in 2005, "the popular stock averages could enjoy eight percent gains next year".
The past week saw hopes for a "Santa Claus rally" fizzle out as instead of finding festive cheer, US investors cashed out what gains they had achieved over 2005 to maximise tax advantages.
Participants were also spooked by fears of a gloomy New Year for the US economy as yields on the Treasury bond market inverted, signalling that longer-term government notes are paying out less than shorter-term bonds.
In times of normal economic growth, the yield rises progressively from short- to long-term bonds.
The yield on the 10-year Treasury note Friday was up to 4.389 percent, but still below the two-year yield of 4.400 percent. The yield curve first inverted in the past week on Tuesday.
In late 1999, 30-year bond yields fell below overnight rates, just before the Dow reached its "dot-com" heights in January 2000 and the Nasdaq peaked in March 2000. Both indices then went into freefall.
"I think the yield has worried investors. Some investors believe that it's a signal that a recession lies ahead. I believe that is a faulty interpretation," Hugh Johnson of Johnson Illington Advisors said.
"We only have a record of the yield on the two-year Treasury going back to 1976. So it's not a statistically significant sample," he said.
Indeed, Lehman Brothers economist Ethan Harris said, the US economy is performing better than the bond market suggests with holiday shoppers out in force and the property market cooling to a "soft landing" rather than a crash.
"The economy continues to chew up yards: driving through natural disaster, dodging repeated energy shocks and running past the various imbalances in trade, the budget and consumer finances," he said.
"This strength is due primarily to the health of the business sector: firms have strong balance sheets and pent-up demand for capital and labour after very conservative spending in 2002 and 2003."
The highlight of the coming week's US data calendar will be Tuesday's release of minutes from the Federal Reserve's last meeting on December 13.
Wall Street is likely to get a lift if the minutes shed more light on hints that the Fed is coming close to ending a long-running campaign of raising US interest rates.
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