Nasdaq jumps, Dow hangs on
Major gauges keep it mostly positive as investors take comfort in meeting among Fed's Bernanke, Sen. Dodd and Treasury Secretary Paulson; oil prices dip.
NEW YORK (CNNMoney.com) -- Stocks stabilized Tuesday afternoon as investors took comfort in falling oil prices and a meeting among Federal Reserve Chairman Bernanke, Senator Dodd and Treasury Secretary Paulson on the problems in the financial markets.
The Dow Jones industrial average (down 25.36 to 13,095.99, Charts) was little changed with around 25 minutes left in the session, while the broader S&P 500 (up 3.27 to 1,448.82, Charts) index gained 0.3 percent. The tech-fueled Nasdaq Composite (up 13.98 to 2,522.57, Charts) index gained 0.6 percent.
Stocks had slipped in the morning amid ongoing worries about problems in the credit and mortgage markets. At the same time, Treasury prices rallied for a second session in a classic 'flight-to-quality' move. But in the afternoon, stocks began to recover, while bonds seesawed.
Stocks have suffered over the last month amid worries about the tightening of credit - connected to the housing market collapse and problems with the subprime mortgage market. Subprime loans are loans made to consumers with less than ideal credit.
But investors found some comfort Tuesday as reports emerged about the closed door morning meeting among Bernanke, Paulson and Dodd. Although nothing specific emerged from the meeting, the fact of the meeting itself was likely reassuring to market participants.
Senate Banking Committee leader Christopher Dodd said after the meeting that Bernanke pledged to use all the tools at his disposal to keep markets working, Reuters reported.
"It's just more talk, but it shows that they are ready if another shoe were to drop," said Alan Lancz, money manager and director of Lancz Global.
The Federal Reserve has been infusing billions into the banking system in recent days as a means of trying to keep the liquidity moving. On Monday, it added $3.75 billion.
Last week, the Fed cut its largely symbolic discount rate - which affects banks and other lenders - by a half-percentage point to 5.75 percent. The move raised bets that it may cut the more widely-watched fed funds rate - which affects consumer loans - at the Sept. 18 policy meeting.
However, Fed officials have been making comments to discourage such assumptions, including Federal Reserve president Jeffrey Lacker, who said Tuesday afternoon that recent market problems alone are not sufficient to justify a rate cut.
"The first move was the discount rate cut Friday, and that's followed by the discussions today," Lancz said. "It's responsible in part for the stabilization that you're seeing in the markets."
One issue that remains in debate is the lifting of portfolio caps on housing finance leaders Fannie Mae (up $1.37 to $68.87, Charts) and Freddie Mac (up $0.72 to $64.25, Charts, Fortune 500), a move that critics say would reassure investors. Sen. Dodd said that he brought the issue up with the Treasury Secretary, but that Paulson showed reluctance to lift the caps.
"Part of the fear [in the market] is not just that subprimers can't get a mortgage, but that everyone else can't either," said Ken Kam, portfolio manager of the Marketocracy Masters 100 (up $0.03 to $14.85, Charts) fund. Taking the caps off Fannie Mae and Freddie Mac would provide assurance to people who can reasonably get good mortgages, Kam said.
Separately, in a television interview, Secretary Paulson said that the global economy remains strong and that liquidity will return to normal once investors reevaluate risk.
Financial, mortgage and consumer stocks in particular have suffered within the recent slowdown, and they were among the select gainers helping the broader market Tuesday afternoon.
Troubled lender Countrywide Financial (up $1.76 to $21.58, Charts, Fortune 500) found some relief Tuesday on reports that billionaire investor Warren Buffett's Berkshire Hathaway (Charts) may be seeking to buy parts of the company.
Elsewhere in the sector, Capital One Financial (up $1.81 to $68.53, Charts, Fortune 500) said late Monday that it was closing its troubled GreenPoint mortgage unit, that it will cut 1,900 jobs and shutter 31 offices by the end of the year. Shares inched higher Tuesday.
Additionally, a 2 percent slide in the price of oil was helpful to the fuel-dependant airline sector, sparking a rally in those stocks. The Amex Airline index gained 3.8 percent.
But adding to concerns, an industry report showed that July foreclosures rose 9 percent from the previous month and almost doubled from a year ago.
LSI Logic (up $0.38 to $6.56, Charts) shares jumped 7.5 percent after the company said it will sell its mobility products unit for $450 million to Infineon Technologies AG. The chip maker said it will use some of the proceeds toward a $500 million share repurchase plan.
But a number of other big technology shares slipped, limiting any advance. They included Dow components Microsoft (down $0.29 to $27.97, Charts, Fortune 500), Intel (down $0.18 to $23.93, Charts, Fortune 500) and Hewlett-Packard (down $0.64 to $45.94, Charts, Fortune 500).
Market breadth was positive. On the New York Stock Exchange, winners beat losers three to two on volume of 790 million shares. On the Nasdaq, advancers beat decliners by a slim margin on volume of 1.47 billion shares.
Treasury prices gained, after turning flat at midday. The advance lowered the benchmark 10-year note yield to 4.59 percent, down from 4.63 percent late Monday. Bond prices and yields move in opposite directions.
In currency trading, the dollar slipped versus the yen and inched higher versus the euro.
U.S. light crude oil for September delivery fell $1.65 to settle at $69.47 a barrel on the New York Mercantile Exchange.
COMEX gold for December delivery fell 30 cents to $666.20 an ounce.