Wall Street on edge

NEW YORK (CNNMoney.com) -- Stocks slumped Friday afternoon, as investors weighed news that the Federal Reserve has pumped $38 billion into the banking system with worries about the tightening of credit and the subprime mortgage market fallout.

The Dow Jones industrial average (down 117.79 to 13,152.89, Charts) lost 0.9 percent with about two hours left in the session. On Thursday, the Dow slumped 387 points, suffering its second biggest one-day point and percentage decline of the year.

The broader S&P 500 (down 9.78 to 1,443.31, Charts) index lost 0.6 percent. On Thursday, the S&P 500 slumped nearly 3 percent.

The tech-fueled Nasdaq Composite (down 25.67 to 2,530.82, Charts) index gave up 0.9 percent, after falling 2.2 percent Thursday.

The Dow had slumped more than 200 points in the morning, reflecting a broad market selloff, before trying to rebound near midday after the second wave of the Federal Reserve's cash infusion. However, any recovery was short lived, with the broad market falling again in the afternoon.

Treasury bond prices erased morning gains, after having risen in a classic "flight-to-quality" move into the comparatively safer haven of bonds.

Stocks slumped Thursday as worries about a tightening of the global credit market resurfaced, sparking a broad decline in stocks in the U.S. and abroad.

The worries continued Friday after central banks in Europe, Japan, Australia and the U.S. all made billions available.

However, late-morning news that the U.S. Federal Reserve was upping its initial influx of $19 billion to $35 billion helped markets stabilize, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

The major gauges briefly turned positive, before retreating again. Still, the afternoon declines were slim compared to the morning.

"There may be a little less fear now, with the Fed's second move," Saluzzi said. "It may not really make much of a difference, but it settles some feelings.

However, concerns about credit tightening and subprime aren't going away anytime soon, and the market is bound to remain vulnerable in the weeks ahead, let alone next week.

"This is still an emotional market and there are a lot of news events that could happen over the weekend," Saluzzi said.

Stocks have been whipsawed over the last few months on fears about tightening credit after a period of widespread liquidity.

At the same time, investors have been trying to sort out the implications of the fallout from the subprime mortgage market - loans made to consumers with less than ideal credit - amid the slumping housing market.

The European Central Bank (ECB) pumped extra cash into the system for a second day in a row, adding $83 billion in liquidity Friday. Central banks in Japan and Australia also added liquidity to their banking systems.

The Federal Reserve followed suit, initially adding $19 billion in temporary reserves. The move was the biggest single temporary open market operation in four years, the New York Federal Reserve said, according to Reuters. In the late morning, the central bank said it was adding an additional $16 billion and in the afternoon, another $3 billion, bringing the total to $38 billion.

Futures markets show traders expect the Federal Reserve to cut interest rates on Sept. 18, the next policy meeting. However, there is also some speculation that the central bank could cut rates ahead of that meeting.

Commodity and technology stocks were among the issues bouncing back, enabling the broader market to trim losses.

Declines were broad-based, with 23 out of 30 Dow components sliding. Among the standouts to the downside, Alcoa (down $1.01 to $34.43, Charts, Fortune 500), General Electric (down $1.06 to $37.88, Charts, Fortune 500) and Microsoft (down $0.69 to $28.61, Charts, Fortune 500) all lost at least 2 percent.

Hewlett-Packard (up $0.47 to $47.49, Charts, Fortune 500) and IBM (up $1.44 to $112.17, Charts, Fortune 500) were among the few gainers.

Countrywide Financial (down $1.86 to $26.80, Charts, Fortune 500) slipped almost 6 percent after saying in a regulatory filing that unprecedented disruptions in the mortgage market pose a threat to its financial state.

Market breadth was negative, but improved from the morning. On the New York Stock Exchange, decliners beat advancers 2 to 1 on volume of 1.74 billion shares. On the Nasdaq, losers topped winners 3 to 2 on volume of 2.32 billion shares.

In global trade, European and Asian markets ended lower.

Treasury prices were flat, with the benchmark 10-year note yield holding at 4.77 percent, little changed from late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar was flat versus the euro and recovered versus the yen.

U.S. light crude oil for September delivery fell 39 cents to $71.20 a barrel on the New York Mercantile Exchange.