Was it worries over the nation's housing recession and the unraveling of the subprime mortgage industry? A stray comment by former Federal Reserve Chairman Alan Greenspan that resonated around the world? Rising oil prices that stoked inflation fears? Or just a bull market that had grown long in the tooth and was due for a pullback?

Market watchers gave all of those reasons for the sharp drop in stock prices in late February and early this month, ending a climb that began last summer. Though stocks gained back much of that ground, the major market indices ended the first quarter more or less where they started, with either small gains or small losses.

"It's kind of a Rip Van Winkle effect," said Andrew Loechl, a principal at Seattle's Eagle Harbor Asset Management. "If you fell asleep in January and woke up today, you wouldn't think much had happened."

Friday's market activity encapsulated much of the turmoil of the entire quarter, as stocks rose, dropped and then recovered.

The Dow Jones industrials rose 5.60 points, or 0.05 percent, to 12,354.35, after rising 67 points and falling 106 earlier in the session. The Dow ended the quarter down 108 points, or 0.87 percent; that was the index's feeblest performance since the second quarter of 2005.

Broader stock indicators were mixed. The Standard & Poor's 500 index lost 1.67, or 0.12 percent, to 1,420.86, and the technology-dominated Nasdaq composite index rose 3.76, or 0.16 percent, to 2,421.64.

But the markets' small net change masked considerable volatility, and a closer look reveals how different sectors fared.

If, as many economists say, the United States is approaching the end of the current expansion, you'd normally expect the best performers to be large-capitalization stocks and "defensive" issues — those that are less sensitive to the ups and downs of the business cycle.

But the large-cap Standard & Poor's 500 index was up just a smidge in the quarter, while S&P's mid-cap index gained 5.5 percent. And while defensive sectors such as energy, health care and consumer staples did gain, the top-performing sector was basic materials, driven by double-digit gains in construction materials and metals stocks.

Though the big deals grab most of the headlines, much of the recent spate of merger and buyout activity has been among midsized companies, said Jeff Atkin, a principal at Kunath Karren Rinne & Atkin, a Seattle-based investment management firm.

Suppliers of building materials have benefited from nonresidential construction on everything from office towers to highways, he added. And despite the deflating housing market, new-home construction rose more than expected last month (though declines in building permits portend slower times ahead).

But stocks also rose and fell for reasons that had little to do with the broad economy. The premier local example was Dendreon, a Seattle biotech whose stock had traded in the $4-to-$5 range for more than a year, until Friday.

Nearly all of Dendreon's 210 percent gain for the quarter came on its last day, after the company's drug for prostate cancer moved a big step toward gaining regulatory approval.

Less spectacular was Weyerhaeuser, whose stock at one point was up nearly 22 percent since the start of the year. But much of that rise was due not to investor optimism about the fundamentals of the wood-products business, but speculation that the Federal Way-based company was about to convert itself into a REIT. That hasn't happened — yet — and after a couple of brokerage downgrades, the stock began moving back down. Still, it closed the quarter up 5.8 percent.

Despite hand-wringing by some that overregulation was hurting the competitiveness of U.S. securities markets, interest in initial public offerings continued to be strong. Seventy-four companies announced IPOs in the quarter, up from 66 in the same period last year. And 66 companies completed IPOs on U.S. markets, versus 55 a year earlier.

Only one Northwest company was among those selling stock for the first time, but it was a doozy: Kirkland-based Clearwire raised $600 million in its March 7 offering, making it the largest IPO of a Washington-based company since AT&T Wireless in 2000. Since then, however, Clearwire has lost 18 percent, closing out the quarter at $20.47.

Despite the choppier waters, the fundamentals are still in place for continued stock-market gains, said Peter Glidden, regional president for Harris Private Bank in Seattle.

Interest rates continue to be relatively low, Glidden said, making stocks look like better investments. Corporate profits are still rising, though many expect the growth rate to slow when first-quarter results start coming in a few weeks. And billions of dollars of liquid cash are still flowing around the world, looking for a home.

"2007 could turn out to be a lot like 2006," he said, noting that despite several steep dips last year, the S&P500 still finished with a double-digit gain.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

The bad news is that after nearly a straight-up decade of mining gold on Wall Street, investors are plucking pyrite.

The good news? The days of fool's gold may be subsiding. The investment community is heading into its most profitable time of the year, if the calendar has any value. The month of October usually is a winner (despite horrific moments in 1929 and 1987). Then comes the mother lode: November, December and January, the three best months.

Toward year's end, investors--especially big institutional players such as banks, mutual funds and insurance companies--like to gild their portfolios with the best market names. That enhances buying of many of the marquee stocks.

The buying euphoria often carries into the new year, as investors flood pension funds and other investment pools with fresh cash.

That may not assuage some who have lived through one of the worst six-month market periods in recent memory. Remember December, when the Nasdaq composite concluded three months with a 48 percent gain? Investors may be excused for suddenly finding such halcyon times bittersweet in the face of this year's losses.

For the quarter, indexes were mixed. The bellwether Dow Jones industrial average, despite a spate of weakness at the end, eked out a gain of 2 percent in the latest three months, up 202.66 points to 10,650.55.

But the Nasdaq, the benchmark for many technology investors, lost 7 percent (thanks to a 13 percent September swoon), off 293.29 points to 3,672.82.

Both indexes were battered in September, the Dow off 5 percent, the Nasdaq down 13 percent.

Charting regional stocks for the quarter, The Seattle Times Northwest index fell 7 percent, off 77.00 points to $1,078.50. Among 215 stocks tracked by The Times, 93 rose, 120 fell and two were unchanged. The WM Group Northwest 50 of 50 stocks weighted by their regional economic impact gave back 0.2 percent, off 18.67 points to 8,016.62.

Other major indexes: Standard & Poor's 500, off 18.12 points, or 1.2 percent, to 1,436.48; New York Stock Exchange Composite, up 21.22 points, or 3 percent, to 663.04; American Stock Exchange Index, off 8.60 points, or 1 percent, to 927.30.

Because it was a tough quarter to make a buck, and an exceedingly tough quarter to float a new stock, the new offerings that did emerge were hardy survivors that populated the top of the quarterly performance list. (Four new issues in the latest quarter vs. five the previous quarter, six the quarter before that, and eight in that off-the-chart fourth quarter last year.)

The quarter's top two stocks were newcomers. Advanced Power Technology of Bend, Ore., a maker of power semiconductors, popped out at $15 a share Aug. 8 and wound up at $33.13, up $18.13, or 121 percent. Eden Bioscience appeared for trading only Wednesday. Priced at $15, the Bothell-based plant-technology company hurtled $18, or 120 percent, higher to $33.

Rosetta Inpharmatics imprinted a similar success story, pricing at $14 Aug. 3 and ending at $27.89, up $13.89, or 99 percent. Rosetta, a Kirkland company, captured the wave in genomics. Its specialty is making equipment and software to analyze genetic information.

The fourth initial public offering was lower on the performance list, beginning its trading just 10 days ago. TTM Technologies of Redmond provides manufacturing services for printed circuit boards. Priced at $16, the stock finished the quarter at $23.50, up $7.50, or 47 percent.

Before getting to other top quarterly performers, here are the best Northwest stocks over longer time periods: nine months--Cell Therapeutics, up 853 percent; one year--the same, Cell Therapeutics, up 2,864 percent; five years--Immunex, up 3,563 percent.

High-technology stocks faced the brunt of summer selling. But there were exceptions. Pixelworks, based in Tualatin, Ore., near Portland, makes semiconductors that enable display of broadband content on electronic devices. That stock, public in May at $10, doubled in the quarter, up $24.94, or 110 percent, to $47.69.

Although retail-oriented stocks were boxed around, two fashioned outstanding quarters. Cutter & Buck, the Seattle-based sportswear maker and retailer, skipped $4.50, or 57 percent, to $12.44. Portland's Columbia Sportswear tacked on $19, or 71 percent, to $45.88.

Cutter & Buck had been much higher, at $25 on the last day of 1998. It swooned, partly because it diverted money to its retail concept. But with insiders buying, modestly improving results, investors betting against the stock forced to buy it to square their positions, and because there isn't a lot of stock out there, the stock has shown some life, said Jeff Atkin of the Kunath, Karren, Rinne & Atkin investment-management company in Seattle.

Columbia Sportswear profited from its own financial improvement and struggles of some competitors, Atkin said.

Cell Therapeutics, a Seattle biotech and the best regional stock over the past 12 months, raised more than $110 million shortly before quarter's end. Since biotechs dine on cash at healthy paces to fund research and development, the latest infusion was a positive. The stock gained $36.06, or 118 percent, to $66.69.

Although Microsoft etched big news in the last week of the quarter, getting its appeal of its antitrust case headed for the appellate level, Boeing was the consistent big winner in the battle of the Northwest's Dow-industrials components. Like a herd, securities analysts became more and more convinced the aerospace giant's production schedule was hitting on all cylinders, and the order book was filling up.

So Boeing, the dog of the Dow in 1998, suddenly became the darling, hitting a series of record highs. In the third quarter, Boeing vaulted $20.94, or 50 percent, to $62.75. A beneficiary was Portland's Precision Castparts, which makes engine castings and other airliner parts. Precision stock zoomed 70 percent, up $15.75 to $38.38. Despite a brief rally last week, Microsoft still fell $19.69, or 25 percent, to $60.31. It hit a series of 20-month lows last week.

Boise's Morrison Knudsen, the giant construction company, changed its name to Washington Group International. That didn't hurt the stock, which bounced $4.19, or 58 percent, to $11.44.

Safeco sacked its chief executive--it still is looking for a replacement--and saw its stock price magnify 37 percent, up $7.38 to $27.25. Safeco is a Seattle insurance company with a major financial-services and mutual-fund arm.

Numerous dot-com stocks dotted the bottom of the charts. The list included: Primus Knowledge Solutions, off $30.19, or 67 percent, to $14.81; N2H2, off $2.50, or 50 percent, to $2.50; Loudeye Technologies, off $10.63, or 61 percent, to $6.81; and Cobalt Group, off $3.38 or 49 percent, to $3.50.

In July, InfoSpace agreed to buy Go2Net. The former is a Redmond data provider for Internet companies. The latter is a prominent Seattle Web-site operator controlled by Microsoft co-founder Paul Allen. Wall Street hated the deal. InfoSpace lost $25, or 45 percent, to $30.25. Go2Net picked up $3.95, or 8 percent, to $54.27.

Investment bankers were busy deal-making in the quarter. The biggest ever for the region was Deutsche Telekom's bid of about $50 billion for Bellevue's VoiceStream Wireless. VoiceStream ended almost dead even, off 23 cents to $116.06.

In other deals, John H. Harland bought Oregon's Concentrex, the former CFI Proservices, for about $140 million; Plum Creek Timber ponied up $4 billion for Georgia Pacific Timber; Chiron plucked PathoGenesis for $700 million; Umpqua Holdings agreed to merge with southern Oregon neighbor VRB Bancorp; Exelixis bid $68 million to buy Portland's Agritope; and Upgrade International said it would pay about $17 million for Pathways Group.

In addition, InterWest Bancorp changed its name to Pacific Northwest Bancorp and moved from Oak Harbor to Seattle.

And Sunshine Mining, founded 116 years ago, was delisted from the New York Stock Exchange and filed for reorganization under Chapter 11 of the federal Bankruptcy Code.

All that glitters is not gold--or silver, in Sunshine's case.

Information from Bloomberg News is included in this report. Greg Heberlein's phone number is 206-464-2267. His e-mail address is gheberlein@seattletimes.com.