Get ready for the mother of all weeks

The stock market was flat on Friday and volume was low. It looked as if Wall Street were asleep.

That won't happen next week. In fact, the market faces the potential for dramatic swings just about every day, with the Federal Reserve expected to decide Tuesday whether to cut interest rates and earnings reports coming from key investment banks spread between Tuesday and Thursday.

At the end of trading Friday, the Dow Jones industrials were up about 18 points to just under 13,443. The Standard & Poor's 500 Index was basically unchanged at 1,484, and the Nasdaq Composite Index added 1 point to 2,602.

The Dow had dropped more than 100 points at the open on concerns about the health of one of Britain's biggest mortgage lenders but then came back.

It was a pretty good week for the averages. The Dow was up nearly 2.5%, its best weekly performance since April and third-best performance for the year. The S&P 500 was up 2.1%, also its best week since April and its fourth-best week of 2007. The Nasdaq was up 1.4%, its best week since the week of Aug. 20.

But smaller stocks did not fare as well. The Russell 2000 Index ($RUT.X), which tracks small-capitalization stocks, gained only 1% on the week and is down 0.5% on the year.

For the year, the Dow is up 7.9%. The S&P 500 is up 4.7%, and the Nasdaq is up 7.7%.

Here's how low the volume was: Just 1.2 billion shares on the New York Stock Exchange, more than 30% below average, and fewer than 1.6 billion shares on Nasdaq, a bit more than 25% below its average.

After a quiet Monday comes Fed Day

Monday is likely to be the quietest day of the week because there aren't many earnings announcements or economic reports. Then things get exciting. Here's how the rest of the week shapes up:

Tuesday. The big story will be whether the Federal Reserve cuts its federal funds rate, what banks charge each other for overnight loans. The conventional wisdom is that the Fed will cut the rate from 5.25%, where it's been for more than a year, to 5%.

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But as important will be the third-quarter earnings report from investment bank Lehman Bros. (LEH, news, msgs). Lehman and Bear Stearns (BSC, news, msgs) have been focal points for worries about the health of the U.S. financial system because both have been so involved in the subprime mortgage mess and the mortgage securities business. The stock has fallen 24% in 2007. Reuters estimates Lehman will report $1.52 a share in earnings, down from $1.57 a share a year ago.

Also reporting Tuesday: Kroger (KR, news, msgs) and Darden Restaurants (DRI, news, msgs), the operator of the Olive Garden chain.

There also will be an important inflation gauge to look at: the Producer Price Index. The core rate, which is what the Fed and others watch, is expected to show a 0.2% increase.

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Wednesday. Another big investment bank report: Morgan Stanley (MS, news, msgs). So far, Morgan has managed to remain above the concern about Lehman Bros. and, say, Bear Stearns. But Reuters sees earnings coming in at $1.63 a share, down nearly 7% from a year ago.

Also reporting on Wednesday: General Mills (GIS, news, msgs) and office furniture maker Herman Miller (MLHR, news, msgs).

The big economic reports of the day: the Consumer Price Index from the Labor Department and the August report on housing starts from the Commerce Department. Briefing.com is looking for the CPI to be little changed from a year ago and for starts to run at annual rate of 1.37 million units for August. That would be down slightly from July but off 17% from a year ago.

Thursday. Two more investment banks will report: Goldman Sachs (GS, news, msgs) and Bear Stearns. These will be closely scrutinized to see how much damage the subprime mess has caused them.

FedEx (FDX, news, msgs) and Nike (NKE, news, msgs) also report. Watch FedEx because its freight volume data have been fairly reliable barometers of the health of the economy.

The big economic report of the day will be the Philadelphia Federal Reserve Bank index of manufacturing.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	13,442.52	13,113.38	2.51%	7.86%
S&P 500	1,484.25	1,453.55	2.11%	4.65%
Nasdaq Composite	2,602.18	2,565.70	1.42%	7.74%
Russell 2000	783.49	775.79	0.99%	-0.53%
Crude oil per barrel	$79.10	$76.70	3.13%	29.57%
10-yr. Treasury yield	4.46%	4.37%	2.15%	-5.27%
Gold per troy ounce	$717.80	$709.70	1.14%	12.51%

Downgrades, Northern Rock keep the markets in check

The market was held back Friday by new reports that showed signs of a slowing economy and downgrades of two key stocks: Intel (INTC, news, msgs) and American Express (AXP, news, msgs).

Intel fell 1.7% to $24.93, and American Express was down 2.7% to $58.94.

Merrill Lynch said Intel shares are unlikely to rise much further, though the company is set to benefit from healthy demand for PCs, including notebooks, and efficiency gains.

Partly because of that, Hewlett-Packard (HPQ, news, msgs) was down as well -- off 0.8% on Friday to $48.38.

Merrill Lynch said it feared that weak U.S. employment could undermine American Express' "otherwise strong growth prospects."

At the same time, financial stocks tumbled on news that the Bank of England was giving emergency assistance to Northern Rock (GB:NRK, news, msgs), the United Kingdom's third-largest mortgage lender.

A government report on industrial production showed only a small gain -- and that only because hot weather had forced utilities to pump out more electricity to power air conditioners.

A report on retail sales also disappointed traders. It, too, showed a gain that most analysts said was due to clearance sales by auto dealers. Take the auto sales out, and the report showed a decline of 0.4%. That, said economist Peter Morici of the University of Maryland, was "a terrible showing."

The retail sales report probably will help the Federal Reserve justify a rate cut next week, Morici, the former chief economist for the U.S. International Trade Commission, said in a research note.

Crude oil pulled back to $79.10 on Friday. Thursday, crude closed at $80.09, its first close above $80.

While the Amex Oil Index ($XOI.X) was down slightly on Friday, key stocks, such as ExxonMobil (XOM, news, msgs), Chevron (CVX, news, msgs) and ConocoPhillips (COP, news, msgs) were all higher.

Seventeen of the 30 Dow stocks were higher, along with 296 S&P 500 stocks.

McDonald's (MCD, news, msgs), up 2.1% to $55.45, was the Dow leader. American Express was the laggard. McDonald's is the Dow leader for September and for the year.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$79.10	$80.09	-$0.99	6.83%	29.57%
Heating oil (per gallon)	$2.2078	$2.2190	-$0.0112	8.11%	38.17%
Natural gas (per million BTU)	$6.2790	$6.0290	$0.2500	14.83%	-0.32%
Unleaded gasoline (per gallon)	$2.0265	$2.0464	-$0.0199	-1.24%	26.49%

Bank of England to the rescue

Stocks in the United Kingdom and Europe stumbled on news that the Bank of England had agreed to provide emergency funding to Northern Rock, one of the United Kingdom's largest mortgage lenders.

Northern Rock, whose shares were off more than 23% to 490.65 pence in London ($9.86 in U.S. dollars), has been struggling with the same kinds of liquidity problems that have hurt Countrywide Financial (CFC, news, msgs) in the United States.

This was the first time the Bank of England has acted as a lender of last resort in this way since gaining independence on interest-rate policy in 1997. The move comes two days after its governor, Mervyn King, condemned some of the liquidity-providing measures other central banks have taken in the last month as needlessly encouraging risk-taking.

The Northern Rock problem was bothering U.S. financial stocks. The Amex Securities Broker/Dealer Index ($XBD.X) was up 0.5% to nearly 227. Lehman Bros. was off 0.3% to $59.50. Morgan Stanley (MS, news, msgs) was off 1% to $66.11.

Goldman Sachs' Global Alpha fund gets clobbered

For years, Goldman Sachs' flagship Global Alpha hedge fund could do no wrong. But over the past year, The Wall Street Journal noted Friday, it has been able to do almost nothing right.

In August, the worst month in the fund's 12-year history, it was down 22.7%, according to a recent letter to investors. For January through August 2007, it was down 33.4% -- due to bad bets on everything from the Australian dollar, the Norwegian stock market and Japanese government bonds. The letter gave no indication about how the fund was faring this month. Over the past 12 months, the fund has lost 37% of its value.

Global Alpha's dismal record this year is especially startling because it is a "multistrategy fund" that can use almost any investing strategy it wants to make profits. In theory this should give it the flexibility to adapt to volatile and difficult markets.

The Goldman problems highlight one of the key dangers that have tripped up hedge funds in the current turmoil: strategies touted as unique but which channel funds into very similar investments. This time, everyone got hurt when the investments wound up needing to be sold all at once.

Goodman Sachs closed up 1.1% to $190.59.

A billion bucks for Godiva?

Campbell Soup (CPB, news, msgs), the world's largest soup maker, is seeking $1 billion to $1.5 billion for its Godiva chocolate division, Bloomberg News says, citing two people with direct knowledge of the sale.

Financial information about the unit will be sent to potential buyers later this month, said the people, who declined to be identified before an agreement is reached.

Godiva, which generates 7% of Campbell's revenue, is for sale after 40 years as Chief Executive Officer Douglas Conant lifts growth of products like V8 juice and Swanson broths. Campbell may use the proceeds to reduce debt, A.G. Edwards analyst Christopher Growe wrote on Aug. 9, when Campbell announced it was studying options for Godiva.

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Selling Godiva "certainly makes sense," said Alton Stump, an analyst at Longbow Research in Independence, Ohio. "It's not a core asset."

Campbell Soup was up 0.7% to $35.68 on Friday.

Banks use the Fed's discount window

Borrowing from the Federal Reserve's discount window soared in recent days, which some analysts said may have been the result of the Fed's efforts to restore overnight interest rates to the Fed's target level.

The amount borrowed under the Fed's primary credit program for banks surged to more than $7.1 billion outstanding as of Wednesday, up from about $1 billion a week earlier, the central bank said Thursday. It was the highest level since the day after the Sept. 11, 2001, terrorist attacks.

In August, as liquidity concerns mounted, the Fed injected money into the nation's banking system in a bid to ease problems in some credit markets. As a result, the federal-funds rate -- the amount banks charge each other on overnight loans -- regularly fell well below the target rate of 5.25%.

The Fed also lowered the discount rate -- the rate at which institutions borrow directly from the central bank -- by a half percentage point to 5.75%, in a bid to encourage banks to borrow directly from the Fed.

Short hits from the markets -- 4 p.m. ET

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.880%	3.950%	-0.070	-2.76%	-20.57%
5-year Treasury note yield	4.177%	4.193%	-0.016	-1.74%	-11.15%
10-year Treasury note yield	4.462%	4.482%	-0.020	-1.65%	-5.27%
30-year Treasury bond yield	4.724%	4.743%	-0.019	-2.21%	-1.95%
Currencies
U.S. Dollar Index	79.46	79.31	0.15	-1.78%	-4.94%
British pound in dollars	$2.0068	$2.0210	-0.0142	-0.56%	2.41%
Dollar in British pounds	£0.4983	£0.4948	0.0035	0.57%	-2.35%
Euro in dollars	1.3881	1.3870	0.0012	1.82%	5.16%
Dollar in euros	€ 0.7204	€ 0.7210	-0.0006	-1.79%	-4.91%
Dollar in yen	¥115.31	¥114.74	0.57	-0.38%	-3.12%
Commodities
Gold	$717.80	$717.90	-$0.10	5.26%	12.51%
Copper	$3.3925	$3.3965	-$0.004	-0.13%	18.16%
Silver	$12.7050	$12.6800	$0.03	3.88%	-1.97%
Crude oil (NYMEX) (per barrel)	$79.10	$80.09	-$0.99	6.83%	29.57%

By Charley Blaine