U.S. MARKET AVERAGES

U.S. stock averages traded lower Thursday on rising oil prices and brokerage downgrades of Dow industrials components Coca-Cola and J.P. Morgan Chase, but market's decline came as no surprise after the major indexes reached new 4 1/2-year highs Wednesday for the second time in a week, and the urge to consolidate those gains overcame good economic news.

The Commerce Department reported that the trade deficit declined by 5.7% in November to $64.2 billion after hitting a record of $68.1 billion in October. Economists had expected a narrower deficit of $66 billion.

In other economic news, the Labor Department reported that the number of initial jobless claims rose by 17,000 last week to total 309,000. Economists had been expecting an increase of 24,000. The figures indicate continued strength in the labor market.

Goldman Sachs downgraded The Coca-Cola Co. to in-line from outperform and cut Anheuser-Busch Cos. to underperform from in-line.

Dow component J.P. Morgan Chase was downgraded to market perform from outperform by Piper Jaffray, as the broker believes healthy capital markets and synergies from its merger with Bank One are fully figured into the shares.

U.S. crude oil futures for February delivery rose more than $1, on fears of supply disruption amid escalating tension over Iran's resumption of nuclear work.

The airline sector continued to move to the downside, adding to losses posted in earlier trading. The housing sector also extended losses on profit taking.

Energy stocks have resumed thier advance as oil prices jumped on fears of a possible conflict with Iran with the oil sector up about 1.6%. The disk drive sector was an outstanding gainer with a gain of about 1.6%.

Apple (AAPL: chart) extended its 52-week high on continuous gains. SanDisk (SNDK: chart) and AMD (AMD: chart) built on their peaks as well. Identix (IDNX: chart) broke to a fresh peak on a deal to merge with Viisage Technology (VISGD: chart).

Trans World Entertainment (TWMC: chart) added to recent weakness to set a new low.

In midday trading, the Dow Jones industrial average fell 35.23, or 0.32%. The Standard & Poor''s 500 index lost 1.70, or 0.13%, and the Nasdaq composite index dropped 1.88, or 0.08%.

Bonds edged up on news of the narrowing trade gap, with the yield on the 10-year Treasury note falling to 4.44% from 4.45% late Wednesday

MOVERS AND SHAKERS

Apple Computer (AAPL: chart) was upgraded to outperform from peer perform at Bear Stearns, citing an improved revenue and earnings growth rate, reduced risks for transition to Intel and an increased clarity into new product. Analyst Andrew Neff established a year-end stock price target of $105, and raised his 2006 earnings estimate to $2.53 a share from $2.12 and his 2007 forecast to $3.14 a share from $2.42, due to a less-than-expected seasonal decline iPod sales in the fiscal second quarter and an earlier-than-anticipated transition to Intel. Apple’s shares rose 2.5%.

Alliance Capital Management Holding L.P (AC: chart) and Alliance Capital Management L.P. said that Q4 earnings of Alliance Holding may approach or slightly exceed $1 per unit vs. earlier guidance of 75 cents to 90 cents per unit on higher base fee revenues attributable to strong investment performance and net inflows, and performance fees approximately 6 cents per unit above the high end of earlier expectations. The stock rose 5.7%.

France Telecom (FTE: chart) was downgraded by both Morgan Stanley and Goldman Sachs following the company''s warning on sales growth. The stock fell 1.6%.

D.R. Horton (DHI: chart) board approved a 10-cent a share increase in the homebuilder''s quarterly dividend. The dividend represents an 11.1% increase over the previous 9-cent cash payout. The company’s shares lost 1.3%.

ECONOMIC NEWS

Before the start of trading on Thursday, the Department of Commerce released its report on the U.S. trade deficit in the month of November. The report showed that the trade deficit narrowed more than economists had expected.