Wall Street muddled through the past week to a mixed finish as the market digested unmistakable signs of a cooling US economy and tried to anticipate the Federal Reserve response.

The Dow Jones Industrial Average lost 0.27% over the holiday-shortened week to finish at 11,247.87 while the tech-heavy Nasdaq rose 0.41% to 2,219.41.

The broad-market Standard and Poor’s 500 advanced 0.63% to 1,288.22.

The market was still licking its wounds over a dreadful performance for May, which left investors cautious.

The Dow blue-chip index fell 1.8% for the month, with the S and P 500 off 3.1% and the Nasdaq tumbling 6.2%.

The main indexes remain in positive territory for 2006, but just barely.

Wall Street is forced to come to grips with a cooling US economy –decelerating perhaps faster than anticipated. That was evidenced by the weak pace of job creation for May – 75,000 instead of the 175,000 expected by the market.

“Weaker-than-expected employment and the downward revision to April’s gains suggest that the economic slowdown is in place,” said John Silvia, chief economist at Wachovia Securities.

“How much and how rapid remains an issue.”

Investors remain on edge despite the cooling economy because inflation data has been hotter than expected. This raises fears that the Federal Reserve will continue to lift rates after 16 consecutive hikes, which could put a squeeze on economic growth and profits.

“Investors know that the biggest risk to a bull market is that the Fed will be seduced into raising short-term interest rates too high and ending the bull market and recovery,” said Hugh Johnson, chairman of Johnson Illington Advisors.

“Investors are very worried that the Federal Reserve is making that age-old mistake.”

After fretting over inflation, investors' concerns have shifted somewhat, said Dick Green at Briefing. com.

“Now, the concern is over just how much economic growth will slow down,” he said.

“The stock market tends to take a hit with the occasional release that shows any slowing trend in the economy.”

This combination of slowing growth with rising inflation puts the Fed in a new conundrum as it debates the course of action for its next meeting June 29.

“It puts them in a bit of a quandary, because the economy is slowing but core inflation is still running a little high,” said Nariman Behravesh, chief economist at Global Insight.