NEW YORK - US stocks closed narrowly mixed on Friday as falling oil prices tamped down inflation worries and the dollar continued to rally on mounting signs of a slowing global economy.

The Dow Jones Industrial Average advanced 43.97 points (0.38 per cent) to close at 11,659.90, while the tech-rich Nasdaq composite fell 1.15 points (0.05 per cent) to 2,452.52.

The broad-market Standard & Poor's 500 index gained 5.27 points (0.41 per cent) to finish at 1,298.20.

The market endured a volatile session after opening higher on news that crude prices were falling further after Opec lowered its forecast for oil demand growth, citing a weakening global economy.

'The softening economic situation has led to a further slowdown in oil demand growth', the Organisation of the Petroleum Exporting Countries said on Friday.

The New York crude oil futures contract shed US$1.24 (S$1.76) to close at US$113.77 a barrel. It has lost nearly 23 per cent of its value since hitting US$147.27 on July 11.

The dollar, meanwhile, surged higher against the euro and other major currencies in the wake of the European Union report on Thursday that the 15-nation eurozone economy had shrunk 0.2 per cent in the second quarter.

On Friday, Hong Kong announced its economy had contracted in the second quarter, two days after Japan said that its economy, the largest in Asia, also had shrunk in the same period.

'Falling commodity prices and a stronger dollar have supported the market, but the mood on a summer Friday is cautious', said Mr Al Goldman, analyst at Wachovia Securities.

A pair of US industrial production indicators on Friday raised hopes that the troubled sector was beginning to show signs of recovery.

Although US industrial output rose only 0.2 per cent in July, cooling from a 0.4 per cent pace in June, the data beat analyst expectations of flat growth.

The Federal Reserve Bank of New York's monthly Empire State survey of manufacturers in New York state found output increased 2.8 points in August following a 4.9-point decline in July. Analysts had forecast a drop of 2.8 points.

'The recent turnaround in manufacturing is good news', Mr Joel Naroff of Naroff Economic Advisors said.

'As for the markets, equity investors who are actually looking into the future should be buoyed by this report. And with oil continuing to collapse, the stars are starting to align at least for next year'.

But a consumer confidence survey by the University of Michigan disappointed at 61.7 points, slightly below market expectations of 62.0 points.

Among stocks in focus, bond reinsurers Ambac and MBIA soared after positive comments by ratings agency Standard & Poor's. Ambac shot up 24.56 per cent to US$5.68 dollars and MBIA gained 8.72 per cent at US$11.22.

Volatile trading left financials mixed: Lehman Brothers lost 0.19 per cent at US$16.17, while Washington Mutual gained 4.36 per cent at US$4.55 and Citigroup rose 2.60 per cent to US$18.55.

Wachovia fell 1.52 per cent to US$15.57 after the Securities and Exchange Commission said the bank had agree in a preliminary deal to buy back up to nine billion dollars in tainted auction rate securities.

Oil majors took a hit from falling crude prices. ExxonMobil slipped 0.49 per cent to US$77.07, Chevron dropped 1.94 per cent to US$84.25 and ConocoPhillips fell 2.15 per cent to US$77.66.

Bond prices rose as the yield on the 10-year US Treasury bond fell to 3.852 per cent from 3.892 per cent Thursday, while that on the 30-year bond dropped to 4.473 per cent from 4.519 per cent.

Bond yields and prices move in opposite directions. -- AFP