Stocks traded mixed in volatile trading Monday as investors recoiled at a cautious economic outlook from a Federal Reserve official and the possibility of more financial troubles of Fannie Mae and Freddie Mac. The market found some solace, however, in retreating oil prices.
San Francisco Federal Reserve President Janet Yellen said in a speech that the financial markets remained fragile, and that it will take time for conditions to improve. "My expectation is that market functioning will improved markedly by 2009," she said. "But things could get worse before they get better."
The comments added to concerns raised in a note by Lehman Brothers analysts about Fannie and Freddie possibly needing to raise more capital as the credit crisis continues. Worries about the ailing financial sector deflated a stock rally that had been fueled by a $4-a-barrel pullback in oil prices.
Trading volumes were relatively low on Monday as they were on Thursday ahead of the July 4th holiday, as investors took to the sidelines and fled to the safety of Treasurys, sending bond prices higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, dropped to 3.93 percent from 3.98 percent late Thursday.
"The weakness in the market is not the fact that there's a lot of sellers _ it's that there's a lack of buyers," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.
He added that some negative technical indicators on Thursday presaged the market's weakness Monday _ notably, that there were no companies that set 52-week highs on the New York Stock Exchange on Thursday, Fullman said. "It's unusual to see a drop-off like that."
In late afternoon trading, the Dow rose 5.05, or 0.04 percent, to 11,293.59, after rising by more than 100 points earlier in the session and tumbling by more than 100. The Dow fell as low as 11,120.74 _ its lowest trading level since Aug. 15, 2006.
Broader stock indicators were mixed. The Standard & Poor's 500 index fell 3.15, or 0.25 percent, to 1,259.75, and the Nasdaq composite index rose 11.63, or 0.52 percent, to 2,257.01.
Fannie Mae fell $3.15, or 16.8 percent, to $15.63 and Freddie Mac fell $2.73, or 18.8 percent, to $11.77, after Lehman Brothers analysts said new accounting rules could require Fannie to raise $46 billion more capital and Freddie to raise $29 billion.
Dow components American Express Co., Citigroup Inc., JPMorgan Chase & Co., and Bank of America Corp. also saw their shares fall ahead of their earnings reports later this month.
Citigroup fell 47 cents, or 2.8 percent, to $16.35; JPMorgan dropped $1.35, or 3.8 percent, to $33.96; Bank of America fell 74 cents, or 3.3 percent to $21.66; and American Express fell 82, or 2 percent, to $39.42.
In addition to financials, the drug maker Merck dragged on the Dow, falling $2.19, or 5.7 percent, to $36.26.
Investors haven't been optimistic lately about the prospects for an economic recovery in the second half of 2008 as they once had. The Dow has fallen the last three weeks while the Standard & Poor's 500 index and the Nasdaq composite index have logged five straight weeks of declines. With drops of more than 20 percent from their October highs, the Dow and the S&P 500 entered bear market territory last week as rising oil stirred inflation concerns.
The dollar traded mixed against other major currencies, while gold prices fell.
In corporate news, NBC Universal and two partners said Sunday they struck a deal to acquire The Weather Channel from Landmark Communications Inc. NBC is a unit of General Electric Co., which is scheduled to report its quarterly results Friday. GE rose 31 cents to $27.21.
General Motors Corp. is considering cutting more white-collar jobs and getting rid of some brands, according to a person familiar the company's discussions. The person asked not to be identified because no decisions have been made. GM shares, which recently sank to all-time lows, rose 7 cents to $10.19.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.14 billion shares.
The Russell 2000 index of smaller companies fell 2.17, or 0.33 percent, to 663.61.
Light, sweet crude fell $3.92 to close at $141.37 a barrel on the New York Mercantile Exchange, after falling by more than $5 a barrel at times.
The retreat did little to assuage fears about high energy prices, however. Wall Street, which has been hurtling stocks lower for the past few weeks, remains fearful that consumers are trimming their spending to pay for gasoline. With consumer spending accounting for more than two-thirds of U.S. economic activity, a pullback could create big ripples.
Overseas, Japan's Nikkei stock average rose 0.92 percent. Britain's FTSE 100 rose 1.85 percent, Germany's DAX index rose 1.97 percent and France's CAC-40 advanced 1.80 percent.
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