The dour consumer sentiment and withering stock market put a floor under safe-haven U.S. Treasuries, with prices easing but pulling off lows.
The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for April fell deeper into recessionary territory, to 62.6 from 69.5 in March, on heightened worries over inflation and the sagging housing market.
Crude oil prices surged over $119 a barrel as the reports of the firing by the U.S. contract ship underscored tensions in the Gulf and on escalating Nigeria and UK supply snags.
According to American defense officials, the Westward Venture cargo ship chartered by the U.S. Defense Department was traveling in international waters when two unidentified small boats approached on Thursday. After the boats failed to respond to radio queries and a warning flare, the cargo ship's onboard security team fired "a few bursts" of machine gun and rifle warning shots, according to Cmdr. Lydia Robertson, a spokeswoman for the U.S. Navy's Bahrain-based Fifth Fleet.
On the New York Mercantile Exchange the price of June crudeCLM8 jumped $3.26 to $119.32.
"When you look at energy prices, housing, the U.S. consumer is still under pressure," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto, Canada.
"The consumer sentiment numbers will indicate that the recent bounce we've seen in consumer discretionary stocks is a bit premature."
In the U.S. stock market, the Dow Jones industrial average .DJI was down 56.18 points, or 0.44 percent, at 12,792.77. The Standard & Poor's 500 Index .SPX was down 2.69 points, or 0.19 percent, at 1,386.13. The Nasdaq Composite Index .IXIC was down 28.81 points, or 1.19 percent, at 2,400.11.
Shares of Microsoft skidded 6.4 percent to $29.77.
In Europe, however, stocks closed higher after Ericsson, the Swedish telecoms equipment maker, reported a surprisingly strong first-quarter profit, sending its stock up 16.6 percent and driving up the technology sector.
The FTSEurofirst 300 index of top European shares ended the day up 1.1 percent at 1,330.84 points.
The index finished the week up 0.3 percent, for its second successive weekly gain and putting the FTSEurofirst on course for its best monthly gain since October 2003.
However, patchy economic data and the unresolved credit crunch made analysts skeptical about the chances of this rally being sustainable.
"The economic data in Europe is starting to deteriorate … yet at the same time, the cyclical area of the market is producing reasonable numbers and guidance," said Andrea Williams, head of European equities at Royal London Asset Management.
In currency markets, the dollar traded at three week-highs versus the euro on Friday, boosted by a growing view the U.S. Federal Reserve may stop cutting interest rates soon.
"It's a major shift in sentiment regarding the outlook of interest rates and we may see the dollar strengthening until the next Fed meeting," said Mark Meadows, a market analyst at Tempus Consulting in Washington.
The perceived odds of the Fed keeping its benchmark interest rate unchanged at 2.25 percent at its meeting next week rose to about 26 percent, futures trading shows FEDWATCH. Just over a week ago, futures were evenly split between a 25 and a 50 basis point cut.
But analysts warned that the Fed isn't likely to start hiking interest rates either as long as incoming data continues to paint a gloomy picture of near-term U.S. growth.
"You are looking at quarter-century lows (in U.S. consumer confidence), which is a not-so-subtle reminder … that the Fed may pause after next week's expected rate cut but will be in no position to raise rates any time soon," said Kevin Flanagan, fixed-income strategist at Morgan Stanley Global Wealth Management in Purchase, New York.
In midday trading in New York, the euro was 0.3 percent lower at $1.5628 <EUR=>, after dropping as low as $1.5555 earlier, a three-week low.
The dollar index, which tracks its performance against a basket of major currencies, hit earlier a one-month high of 73.030 .DXY. It last traded at 72.665, putting it on track forits best monthly performance since May 2007.
The increased worries about global inflation drove down government bonds in developed economies, while signs that firms are surviving the credit crisis tamed expectations for aggressive U.S. interest rate cuts.
Japanese annual inflation jumped to 1.2 percent in March, its highest level in a decade, triggering one of the biggest ever sell-offs in yen bonds 2JGBv1.
Longer-dated U.S. Treasuries and euro zone government debt prices also fell as markets worried about surging oil, rice, tin and other commodity prices.
Benchmark 10-year <US10YT=RR> notes fell 7/32, pushing the yield up to 3.86 percent from 3.84 percent late on Thursday.
The 30-year long bond <US30YT=RR> slid 14/32, lifting its yield to 4.58 percent from 4.55 percent late on Thursday.
In Asia, improvement in risk appetite pushed stock indexes higher. Tokyo stocks rose 2.4 percent .N225. (Additional reporting by Randi Fabi, Amanda Cooper and Natsuko Waki in London and Burton Frierson, Caroline Valetkevitch and Vivianne Rodrigues in New York; Editing by Editing by Leslie Adler)
