Stocks were little changed on Friday as investors fretted about the economy's recovery prospects after government data showed a drop in second-quarter consumer spending but reinforced hopes that the worst of the economic slump is over.

Trading was volatile after the report, as investors digested the mixed news. Consumer spending is considered a crucial driver of corporate profits and economic activity..

Gross domestic product, which measures total goods and services output within U.S. borders, fell at a 1.0 percent annual rate after tumbling 6.4 percent in the January-March period.

GDP numbers that came out were somewhat better than expected. (But) the focus is generally on the personal consumption number, which was a bit disappointing, said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.

The Dow Jones industrial average <.DJI> was up 13.22 points, or 0.14 percent, at 9,167.68. The Standard & Poor's 500 Index <.SPX> rose 0.51 point, or 0.05 percent, at 987.26. The Nasdaq Composite Index <.IXIC> climbed 2.84 points, or 0.14 percent, at 1,987.14.

If the benchmark S&P 500 Index finishes higher, it would mark its fifth straight monthly advance.

Another report showing that business activity in the U.S. Midwest improved in July to the strongest month since September sparked a tepid rally at midmorning, but stocks quickly pared gains.

What you're seeing is numbers that are an improvement, but a lackluster improvement. They're less bad, but not great, said Morganlander.

Travelers Cos Inc , one of the largest U.S. home, auto and commercial insurers, was one of the standouts following positive broker comments, a day after the company raised its forecast for the year.

Its stock jumped 2.3 percent to $42.91.

Shares of companies seen as better able to withstand an uncertain economy also advanced, with Merck & Co Inc up 0.6 percent at $30.13.

On the downside, Walt Disney Co shed 4 percent to $25.17. The media and entertainment powerhouse reported a 26 percent slide in quarterly earnings late Thursday as the recession continued to hurt advertising and consumer spending.

Even though Disney beat expectations by a hair, its shares were the Dow's top drag. JPMorgan downgraded the stock to underweight from neutral on Friday.

The GDP report showed consumer spending, which accounts for about two-thirds of U.S. economic activity, fell at a 1.2 percent rate in the second quarter after rising 0.6 percent in the previous quarter.

With the contraction in the second quarter, GDP has fallen for four straight quarters for the first time since government records started in 1947.

(Reporting by Rachel Chang; Editing by Kenneth Barry)

New Jersey