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NEW YORK (Reuters) - Most stocks on Wall Street surged to record highs on Friday, overcoming jitters about Ukraine and a downward revision of economic growth, while the euro hit its highest level this year as stable inflation cooled expectations of looser monetary policy.
The benchmark S&P 500 stock index rose to record intraday and closing highs on mostly stronger U.S. economic data, even as Ukraine worries and a weaker-than-expected estimate of U.S. gross domestic product for the fourth quarter capped gains.
GDP expanded at a 2.4 percent annual rate in the fourth quarter, down sharply from the 3.2 percent pace estimated in January and below the 4.1 percent pace logged in the third quarter, the Commerce Department said.
But the pace of business activity in the U.S. Midwest rose slightly in February, beating expectations and snapping a three-month run of slower growth, the business barometer from the Institute for Supply Management-Chicago showed.
Also, contracts to buy previously owned U.S. homes edged up in January after a weather-related hit at the end of 2013, and U.S. consumer sentiment rose marginally in February even as concerns about extreme weather persisted, a survey showed.
"The million-dollar question is how much of the slowdown is because of the weather and how much is because of the economy getting weaker," said Bill Stone, chief investment strategist at PNC Wealth Management in Philadelphia, with $125 billion in assets under management.
"The market continues to believe that weather is behind most of it, and we generally agree with that, but we will need to see a pick-up" in the economy, he added.
MSCI's all-country world equity index .MIWD00000PUS rose 0.42 percent, while stocks in Europe rebounded on the relatively stronger U.S. data.
On Wall Street, the Dow Jones industrial average .DJI closed up 49.06 points, or 0.3 percent, to 16,321.71. The S&P 500 .SPX gained 5.16 points, or 0.28 percent, to 1,859.45 while the Nasdaq Composite .IXIC dropped 10.814 points, or 0.25 percent, to 4,308.119.
Late in the session U.S. stocks retreated, with the Nasdaq down 1 percent at one point, as speculation about Russian involvement in Ukraine sparked jitters.
"It's sell first and ask questions later on a Friday afternoon," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
Jason Weisberg, managing director at Seaport Securities Corp in New York, said "if people are looking for a reason to sell, this will fit the bill." He added: "People don't want to take positions over the weekend with what's going on in Ukraine."
Optimism at the beginning of the year that the U.S. economy would accelerate has been tempered by corporate caution, said Daniel Morris, global investment strategist at TIAA-CREF, which has $564 billion in assets under management.
Danish shipper A.P. Moller-Maersk (MAERSKb.CO), seen as a bellwether for the global economy as its vessels account for 15 percent of worldwide container shipping, gave a cautious outlook when it reported results on Thursday, Morris said.
"Companies aren't jumping up and down saying 'Hey, we're really optimistic.' That's what has weighed on the market," he said.
However, fourth-quarter earnings beat expectations and helped lift the U.S. equity market, but corporate guidance and the outlook for 2014 were not so great, he said.
"Even if we stay above 1,850 or so, which has been this ceiling, I don't see that as a signal for a real big break-out," Morris said, referring to the S&P 500.
European shares initially dipped as euro zone inflation data came in at 0.8 percent, 1/10th of a percentage point above expectations, lessening the prospect of new monetary stimulus measures from the European Central Bank.
The pan-European FTSEurofirst 300 index .FTEU3 subsequently closed up 0.22 percent at 1,348.39.
The euro gained as traders had expected a slower pace of inflation in the euro zone and subsequent lower interest rates.
Major currency markets have been broadly stable as investors retreat from emerging markets to safer bets like the euro, dollar, yen and Swiss franc.
"The euro certainly looks good, everything is in place for more gains. But I wouldn't race out and buy it at the moment," said Graham Davidson, FX trader with NAB in London.
The euro rose 0.71 percent to $1.3805, its first time above $1.38 this year. The dollar slipped against the Japanese yen, falling 0.28 percent 101.82 yen.
Brent oil prices dropped below $109 a barrel as the revised GDP estimates curbed the demand outlook. But U.S. oil rose on market talk of decreased supply from the Bakken shale.
Crude oil loadings at a dozen major North Dakota rail terminals fell by more than 200,000 barrels on average in the past two days, data from industry intelligence provider Genscape showed.
Ukraine tensions and the new GDP estimates capped gains.
Brent crude rose 11 cents to settle at $109.07 a barrel. U.S. oil settled up 19 cents at $102.59.
U.S. COMEX gold futures for April delivery settled down $10.20 at $1,321.60 an ounce.
U.S. Treasury debt prices fell, reversing Thursday's gains, as stronger-than-expected economic data led to profit-taking and set the market on track for its biggest weekly loss in a month. The revised downward estimate to GDP, however, limited losses.
"This is profit-taking because rates are so low that any news that works against bonds tends to bring an exaggerated reaction," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis.
The 10-year U.S. Treasury note fell 3/32 in price, pushing its yield up to 2.6547 percent.
Reporting by Herbert Lash; Additional reporting by Jamie McGeever in London; Editing by Dan Grebler and Leslie Adler