US stocks see modest drag from Cyprus so far

The talk on Wall Street shifted this week from the pursuit of record highs to the future of the eurozone after the Cyprus banking crisis took center stage.

The week featured a meeting of a key Federal Reserve policy committee, some important earnings reports and scores of fresh economic data. But Wall Street's eyes were focused squarely on the tiny island nation.

The Cyprus crisis exploded into view last weekend when Cyprus accepted a bailout from the European Union and International Monetary Fund that included a tax on Cyprus bank deposits to raise 5.8 billion euros ($7.5 billion).

The controversial measure was rejected by the Cyprus parliament. By Thursday, the clock was ticking on Cyprus after the European Central Bank vowed to halt emergency financing for Cypriot banks if the country did not come up with a bailout package by Monday.

The Cyprus crisis helped push markets lower three days this week. Still, the market rallied the other two days, including Friday, when equities made up much of the week's earlier losses.

In the end, stocks moved sideways. The Dow Jones Industrial Average closed the week out at 14,512.03, just a hair under last week's level.

The broad-based S&P 500 finished the week at 1,556.89, down 0.2 percent, while the tech-rich Nasdaq Composite Index settled at 3,245.00, down 0.1 percent.

The market's response to the latest flare-up in the eurozone crisis was moderate compared with other times, said Dan Greenhaus, chief global strategist for BTIG.

"Whereas in the past, investors reacted quickly and negatively to any eurozone headline, obviously that was not the case this time as investors seem to have learned a bit of a lesson," Greenhaus said.

The market's response also reflected Wall Street's increasing confidence in the US economy following recent positive trends, said Anthony Conroy, a trader at BNY Convergex Group.

"Had this market not been as resilient as its been, we could have been down a couple of percent" on some of the days this week," Conroy said.

Markets continued to smile on the Federal Reserve's aggressive policy of purchasing bonds to depress interest rates. The policy was reaffirmed by the Federal Open Market Committee (FOMC) at the conclusion of a two-day policy meeting Wednesday.

Fed Chairman Ben Bernanke said the economy has made modest progress in recent months. But he pointed to continued concerns about unemployment and the effect of federal budget cuts.

Most FOMC members agreed that the bond purchases "continue to provide meaningful support to economic growth and job creation," Bernanke said.

These include a batch of solid corporate earnings and generally positive indicators in the housing sector and jobs market.

Construction of new US homes edged higher in February, while existing-home sales reached their highest level since November 2009. Jobless claims continued to hover near five-year lows.

But weaker-than-expected earnings results from FedEx and Oracle cast a cloud on sentiment.

The coming week will see some important economic indicators, including durable goods orders, consumer spending and a revision on fourth-quarter economic growth.

But Cyprus is expected to remain in focus, at least in the early part of the week.

"If something happens this weekend, that'll be what you talk about on Monday and Tuesday," Greenhaus said.

"If Cyprus leaves the eurozone, then you start pricing in all sorts of contagion. People will start freaking out about the eurozone banking sector and, by extension, the global economy," Greenhaus said.

"It would be -- in the short-term -- mayhem."