Market ends lower, Dow on cusp of bear market

NEW YORK (Reuters) - Stocks fell on Friday, pushing the Dow to the brink of a bear market, hounded by concerns that record oil prices and the seemingly endless credit crisis will further damage the economy.

Friday's decline built on Thursday's rout in which the Dow fell about 360 points, and rounded out its worst week since February 10.

While the blue-chip Dow average briefly dipped into bear market territory, it managed to close above that level, thus narrowly avoiding the official onset of a bear market, or a 20 percent drop from its all-time high.

As the price of oil crossed $142 for the first time, shares of companies that sell everything from fast food to soap slid as fears mounted that consumers will need to cut back. Procter & Gamble (PG.N) shares lost almost 3 percent.

Financial stocks were the top drag on the S&P 500. Merrill Lynch's MER.N shares fell after Lehman Brothers forecast Merrill would write down another $5.4 billion in the second quarter. In addition, Moody's Investors Service said it may cut Morgan Stanley's (MS.N) credit ratings.

"We are already in a bear market. You see fundamentally sound companies being punished for the overall performance of indexes," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "Even the good ships get stranded on the beach when the tide goes out,"

The Dow Jones industrial average .DJI dropped 106.91 points, or 0.93 percent, to end at 11,346.51. During the session, the Dow dropped below 11,331.62, or more than 20 percent below its October 9 closing high.

The Standard & Poor's 500 Index .SPX fell 4.77 points, or 0.37 percent, to close at 1,278.38, while the Nasdaq Composite Index .IXIC slipped 5.74 points, or 0.25 percent, to 2,315.63.

For the week, the Dow fell 4.2 percent, the S&P 500 fell 3 percent for its worst weekly decline since June 6, and the Nasdaq fell 3.8 percent, its biggest weekly drop since February 10.

Merck & Co (MRK.N) shares, which rose after a positive study on its experimental migraine treatment, as well as a gain in oil companies' shares helped keep the losses in check.

Merck's stock rose 2.2 percent to $36.98 after it said a late-stage study showed its treatment provided similar pain relief to AstraZeneca PLC's (AZN.L) Zomig treatment, but was better tolerated.

U.S. crude climbed to a record for a second straight day, jumping as high as $142.99 a barrel, as a weak dollar and slumping equities made oil and other commodities an attractive investment alternative. Exxon Mobil shares gave the biggest boost to the S&P 500, even though they rose a mere 0.2 percent to $86.55.

Companies whose fortunes are closely tied to the cost of fuel also fell. U.S. plane maker Boeing's (BA.N) shares fell 1.9 percent to $66.92. United Technologies (UTX.N) shares dropped 2.6 percent to $61.15 and weighed heavily on the Dow.

Among financials, Merrill shares fell 1.1 percent to $32.70, while Morgan Stanley shares dipped 0.3 percent to $36.71.

JPMorgan Chase (JPM.N) shares fell 3.5 percent to $35.05 and were among the top drags on the S&P 500, while Citigroup (C.N) shed 2.4 percent to $17.25. Citigroup's decline also weighed on the S&P.

American International Group Inc (AIG.N) shares fell 1.2 percent to $27.75. AIG said it planned to absorb up to $5 billion in losses on sales of investments from a dozen insurance units hit by the subprime meltdown, Bloomberg News reported.

BlackBerry maker Research In Motion Ltd (RIMM.O)(RIM.TO) fell 2 percent to $120.98, adding to the previous day's steep losses sparked by the disappointing profit outlook the company gave late Wednesday. RIM was the top drag on the Nasdaq.

Home builders' shares tumbled after KB Home (KBH.N), the No. 5 U.S. home builder, posted a wider-than-expected quarterly loss. The stock fell 2.3 percent to $17.72 onthe NYSE.

Early in the session, Commerce Department data showed U.S. personal spending rose by a greater-than-expected 0.8 percent in May, while a key gauge of inflation remained muted.

Some economists said the stronger spending would double

the pace of U.S. growth in the second quarter from what they had been predicting before the data. However, there is a big question mark over whether this will be sustainable.

These concerns were reinforced a short while later by the Reuters/University of Michigan Surveys of Consumers, which hit another 28-year low in June of 56.4 from May's 59.8 reading. It also showed elevated household expectations for inflation.

Trading was active on the New York Stock Exchange, with about 2.29 billion shares changing hands, above last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 3.36 billion shares traded, also above last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by a ratio of about 2 to 1 on the NYSE and by 3 to 2 on Nasdaq.

(Editing by Jan Paschal)