Dow ends down 39 on gloomy economic news

In economic news, the

Commerce Department said consumer spending dropped in August by the largest amount in nearly a year and core inflation for August, which excludes volatile food and energy prices, was up a worrisome 2.5 percent compared to a year ago, the biggest year-over-year increase in more than a decade.

Inflation's increase was far above what the Federal Reserve has set as its "comfort zone" and the concern on Wall Street is that it could portend additional Fed hikes in its benchmark short-term interest rate.

The department said consumer spending, after adjusting for inflation, dropped by 0.1 percent last month, the first decline since a 0.3 percent fall in September 2005, a month when business activity was disrupted by Hurricane Katrina. Income gains were anemic, rising by just 0.3 percent in August, the weakest performance in nine months.

The Dow's flirtation with a new high made investors nervous, said Scott Merritt, a U.S. equity strategist for JPMorgan Asset Management. "It doesn't make a difference from a fundamental standpoint; it's psychology."

For the week, the Dow rose 1.49 percent, the S&P gained 1.60 percent and the Nasdaq rose 1.78 percent.

Friday also marked the end of an unusually strong third quarter as stocks rebounded from their May and June tumble. The Dow gained 4.74 percent for the quarter, the S&P 500 rose 5.17 percent and the Nasdaq gained 3.97 percent. Declining prices for oil, commodities and real estate have once again made equities an attractive investment.

"Investors are getting out of commodities, getting out of residential real estate and getting into financial assets, including stocks," said UBS economist Maury Harris.

The markets also had a strong September. The Dow gained 2.62 percent; the S&P 500 rose 2.46 percent and the Nasdaq advanced 3.42 percent.

In company news, Dell Inc., the world's largest personal computer maker, fell 13 cents to $22.84 after it said it is increasing the recall of Sony Corp (NYSE:SNE - news). battery packs used in its computers to 4.2 million units from 4.1 million units. The batteries can short-circuit and have been blamed for causing some computers in which they are used to overheat. Sony fell 80 cents to $40.36.