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Anxiety over Europe’s financial health dragged the benchmarks lower on Friday. A better-than-expected consumer confidence report to provide little respite, as investors remained jittery ahead of the long weekend. Nonetheless, the strength shown through the week finally enabled the markets cling on to its first weekly gain in many weeks.

The Dow Jones Industrial Average (DJI) dropped 0.6% to end at 12,454.83. The Standard & Poor 500 (S&P 500) was down to 1,317.82, after shedding 0.2%. The tech-laden Nasdaq Composite Index dropped a mere 1.85 points or 0.1% to finish Friday’s trading session at 2,837.53. The fear-gauge CBOE Volatility Index (VIX) edged up 1.0% to settle at 21.76. Trading volumes were significantly weak on Friday as investors refrained from betting big ahead of the Memorial Day holiday on Monday. Consolidated volumes on the New York Stock Exchange, Nasdaq and the American Stock Exchange were 4.78 billion shares, sharply lower than last year's daily average of 7.84 billion.

Concerns from across the Atlantic, primarily from Spain took a toll on Friday’s trading session. The fourth-largest lender in Spain, Bankia, was in need of a bailout and that weighed on investors’ minds. Bankia, the nationalised lender, said that it was in dire need of €19 billion from the state to help shore up its bad loans. The amount is way higher than expectations. Left with no alternative, Spainish Prime Minister Mariano Rajoy, said that the State would have to provide Bankia with the necessary bailout money. Mariano Rajoy commented: "We took the bull by the horns because the alternative was collapse".

The need for the bailout exposes the fragile condition of the banking system. The cracks were further highlighted as Standard & Poor's downgraded credit ratings of five Spanish banks that included Bankia and its parent Banco Financiero y de Ahorro (BFA), Banco Popular, Bankinter, and Banca Civica. Elaborating on the downgrade, S&P’s said: "The rating actions follow our review of the wider implications for economic and industry risks in the Spanish banking sector after our two-notch downgrade of the Kingdom of Spain”.

On the domestic front, the financial sector took a hit and the Financial Select Sector SPDR (XLF) dropped 0.4%. Among financial stocks, American Express Company (NYSE:AXP), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and UBS AG (USA) (NYSE:UBS) dropped 0.9%, 0.7%, 1.4%, 0.5% and 1.2%, respectively.

Amidst these concerns, The Thomson Reuters/University of Michigan index of consumer sentiment came out with positive readings as it jumped to a four and a half year high. The consumer index was up to 79.3 this month, up from 76.4 last month. The figures also surpassed consensus estimates of 77.6. It is being believed that the reading shows that domestic consumers are more confident about the economy since the recession.

Following the data, the retail sector obviously enjoyed some gains and the SPDR S&P Retail (XRT) was up 0.5%. J.C. Penney Company, Inc. (NYSE:JCP), Kohl's Corporation (NYSE:KSS), The Bon-Ton Stores, Inc. (NASDAQ:BONT) and Wal-Mart Stores, Inc. (NYSE:WMT) jumped 2.8%, 0.9%, 2.0% and 0.4%, respectively.

While, this encouraging economic reading was completely erased European worries, the benchmarks still managed to end in the green for the week. Markets mostly had a choppy run through the week with losses turning into gains and vice versa at the final stages. The week also saw China's Premier Wen Jiabao prioritizing economic growth over curbing inflation and also endured hints of Greece exiting euro. The G8 meet and the meeting of the meeting of the European leaders at Brussels failed to give any clear solution to the region’s debt woes, but European Union president Herman Van Rompuy provided an assurance, saying: “"We want Greece to remain in the euro area while respecting its commitments". Eventually, the benchmarks posted their first weekly gains this month and the Dow, S&P 500 and Nasdaq jumped 0.7%, 1.7% and 2.1%, respectively.

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