December 31, 2010 by DONNA KARDOS YESALAVICH

NEW YORK—The Dow Jones Industrial Average rose slightly, giving a quiet ending to a second straight year of gains for the market. Other stock measures fell modestly.

 

The Dow closed up 7.80 points, or 0.07%, at 11577.51, up 11% from where it began 2010. The gain represents the Dow’s second-straight annual increase. Almost half of the 2010 climb came in the year’s final month; the index rose 5.2% in December.

 

The Dow came close to ending 2010 at a fresh closing high for the year, If it had closed above 11585.38, it would have reached its highest close since August 2008.

 

Alcoa led the Dow’s ascent on Friday, rising 18 cents, or 1.2%, to $15.39, although the aluminum producer turned in the fifth-worst performance of the year among the measure’s 30 components, with a 4.5% drop.

 

Hewlett-Packard was the Dow’s worst performer of 2010, falling 18%. It was also weak Friday, slipping 16 cents, or 0.4%, to 42.10. The Dow’s best performer of the year was Caterpillar with a 64% jump. Caterpillar shed 21 cents, or 0.2%, to 93.66, on Friday.

 

The Nasdaq Composite shed 10.11, or 0.4%, to 2652.87, leaving it with a 17% gain for the year. The measure was hurt Friday by declines in many of its most heavily weighted components, including Apple, which slipped 1.10, or 0.3%, to 322.56. The stock jumped 53% in 2010.

 

The Standard & Poor’s 500-stock index edged down 0.24, or 0.02%, to 1257.64 on Friday, although it is up 13% for the year. The measure climbed 6.5% this month, marking its best December performance in 19 years.

 

While 2010 was positive for stocks, it was anything but smooth. Investors were spooked by events such as the May 6 “flash crash” and ongoing worries over the financial health of several euro-zone governments. A new $600 billion stimulus plan from the Federal Reserve and improving economic data helped the market recover from a summer slump, with stocks ultimately reaching highs not seen since before the fall of Lehman Brothers in 2008.

 

“The year, it was kind of like a long road trip,” said Lawrence Creatura, manager of the Federated Clover Small Value Fund. “It wasn’t always comfortable, but the destination was worth it.”

 

The consumer-discretionary sector was the best-performing category in the S&P 500 this year, rising 26%, with the industrials, materials and energy sectors also posting double-digit gains. The health-care and utilities sectors lagged with gains of less than 1% each.

 

Small-capitalization stocks handily outperformed large-cap stocks in 2010. The Russell 2000 index of small-cap stocks surged 25% this year, although it fell 6.09, or 0.8%, to 783.65, in Friday’s session.

Friday’s small moves in U.S. stocks came as investors made their final position changes for 2010, moving to lock in profits from 2010 while setting up fresh bets for the New Year.

 

 

Volume was particularly light. Just under 2 billion shares changed hands in New York Stock Exchange Composite trading. Friday marked the second-lowest volume day of the year, behind the day after Thanksgiving. The full-day average for 2010 is 4.8 billion shares.

No major economic data were released, but there was talk of more deal activity.

 

Imax rose 1.21, or 4.5%, to 28.07, after the U.K. newspaper the Daily Mail said Sony is considering a $40-a-share bid for the big-screen movie company, and that Walt Disney is interested as well. U.S.

 

Shares of Sony edged up 14 cents, or 0.4%, to 35.71, while Disney tacked on 3 cents, or 0.1%, to 37.51. Imax declined to comment on the report.

 

CVS Caremark slipped 23 cents, or 0.7%, to 34.77, after the drugstore chain agreed to acquire Universal American’s Medicare Part D prescription drug business for $1.25 billion a deal that will more than double the size of CVS’s share in that program. Universal American’s stock surged 5.84, or 40%, to 20.45.

 

“We’re ending on a very positive note for the market,” said Quincy Krosby, chief market strategist at Prudential Financial.

 

The CVS deal and speculation over a deal for Imax reflects “a trend that has gained momentum and we expect to see more of that next year,” Ms. Krosby said. “The reason this is significant is that it’s indicative of and it underscores a confidence that the economy is gaining traction.”

 

In other deal activity, the Ensign Group rose 33 cents, or 1.3%, to 24.87, after the skilled-nursing and assisted-living services company said it is acquiring Wisteria Place, a continuing-care retirement community, and its sister facility Wisteria Independent Living, both located in Texas. Ensign expects the facilities, which have an occupancy rate of about 73%, to add to earnings in 2011.

 

Luxembourg-based steel giant ArcelorMittal edged up 35 cents, or 0.9%, to 38.13, after it matched the price of Nunavut Iron Ore Acquisition Inc.’s sweetened bid for Baffinland Iron Mines Corp., the latest move in a three-month battle for control of the junior miner.

Among other stocks in focus, Borders Group tumbled 26 cents, or 22%, to 90 cents, after the company said it is delaying payments to some publishers. The bookstore chain said the delays were part of its efforts to refinance its debt, but it warned “there can be no assurance” that its larger refinancing efforts will be successful.

 

U.S. shares of PolyMet Mining Corp. climbed 16 cents, or 7.2%, to 2.39, after the mine-development company announced changes to its board.

 

Effective immediately, Chairman William Murray is stepping down, but will continue to serve as an active, non-management director. Directors Ian Forrest and Frank Sims will become independent co-chairmen. George Molyviatis is resigning from the board for personal reasons.

 

 

Write to Donna Kardos Yesalavich at donna.yesalavich@dowjones.com