Stocks end lower despite upbeat econ news

• Investors continue to focus on "fiscal cliff" stalemate
• Concerns remain about impact of Federal Reserve policy changes
• Some investors change stock positions for year-end portfolio balancing

NEW YORK (AP) — Major stock indexes finished lower Friday despite a strong Chinese manufacturing survey and a government report that showed U.S. consumer prices fell more than expected.

The tech-laden Nasdaq composite index was 0.7% lower as two of the index's biggest stocks, Apple and Facebook booked losses.

Investors might have been in a better mood, but "fiscal cliff" worries and concerns about the Federal Reserve's new interest-rate policy, announced Wednesday, remain dominant.

The improvement in Chinese manufacturing activity suggests global consumer spending may be recovering from a weak patch this year. China's manufacturing activity rose to a 14-month high in December.

U.S. consumer prices fell 0.3% last month because of a steep fall in gasoline prices. Excluding volatile food and gas, prices rose 0.1% in November.

The Federal Reserve also said manufacturing output rose 1.1% in November.

One bright spot: the yield on the 10-year Treasury bond fell to 1.71% after hitting 1.75% Wednesday, when the Fed surprised markets with its policy change. On Friday, the price of gold was 40 cents lower at $1,695.50 an ounce.

Benchmark crude was up 89 cents to $86.78 per barrel in electronic trading on the New York Mercantile Exchange. The contract lost 88 cents to end at $85.89 per barrel in New York on Thursday.

In currencies, the euro rose to $1.3156 from $1.3075 late Thursday in New York. The dollar fell against the Japanese yen, to 83.52 yen from 83.58 yen.

World markets remained cautious as concerns over ongoing U.S. budget talks offset the impact of survey showing China's manufacturing production rose to a 14-month high.

European markets fluctuated after Standard & Poor's lowered its credit outlook on Britain, meaning there is a one in three chance the country could lose its top credit rating over the next year.

Fitch, another credit ratings agency, affirmed France's own top grade but also kept its negative outlook. It said there was a "slightly greater than 50% chance of a downgrade" next year.

Britain's FTSE 100 index finished 0.1% lower at 5,921.76, while Germany's DAX 30 index ended up 0.2%, and France's CAC-40 index closed flat at 3,643.28.

Investors largely shrugged off agreements reached Thursday by European Union finance ministers: a compromise to create a single supervisor for banks and an agreement to give Greece desperately needed bailout funds. The decisions, while important to end the continent's crisis, had been expected.

Asian indexes rose earlier Friday, when HSBC released its preliminary China Purchasing Managers' Index for December, which rose to 50.9 from November's 50.5. Numbers above 50 represent an expansion of manufacturing.

The improvement in Chinese manufacturing activity suggests global consumer spending may be recovery from a weak patch this year.

"I think it adds further encouragement that China is moving in the right direction," said Andrew Sullivan, an independent analyst based in Hong Kong.

Meanwhile, investors are keeping a close eye on unresolved budget negotiations in Washington between President Obama and key Republican lawmakers.

A deal must be reached by the end of the year to avoid what has been dubbed the "fiscal cliff" — hundreds of billions of dollars in automatic spending cuts and tax increases that could plunge the world's largest economy back into recession.

In Asia, Hong Kong's Hang Seng rose 0.7% to 22,605.9. Mainland Chinese shares posted sharp gains, with the Shanghai Composite Index surging 4.3% to 2,150.63 on the back of the manufacturing data. The smaller Shenzhen Composite Index shot up 4.2% to 816.19.

Japan's Nikkei 225 index sank slightly following the release of a Bank of Japan survey which showed large Japanese manufacturers are more pessimistic about business conditions. The "tankan" index for the December quarter dropped from September's minus three to minus 12, much worse than expected.

The benchmark in Tokyo fell 0.1% to close at 9,737.56, a day after closing at an eight-month high.
South Korea's Kospi fell 0.4% to 1,995.04. Benchmarks in Indonesia, the Philippines and Taiwan also fell. Australia's S&P/ASX was nearly unchanged at 4,583.10.