Stocks give up last-minute gains

NEW YORK (CNNMoney.com) -- Stocks gave up afternoon gains from a recovery in the financial and energy sectors, closing near opening levels.

Earlier in the afternoon investors staged a rally, with the Dow up almost 90 points around 3:15 ET.

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"Early on we heard comments from [Atlanta Fed president Dennis Lockhart] about how bad the economy has been for a long period, even before the credit problems. It made people concerned that it's too late for the Fed to salvage things with a rate cut," said Art Hogan, chief market analyst at Jefferies.

"But investors are starting to realize that both the Dow and S&P are looking attractively valued when you look at earnings projections for the year, and that we've already priced a lot of worst-case scenarios in," he said.

Comments from a slew of Fed officials suggesting a 0.5 point rate cut at the upcoming policy meeting is not a done deal added to the day's sense of unease.

The Dow Jones industrial average (up 32.76 to 13,146.14, Charts) closed up 0.1 percent, while the broader S&P 500 (up 1.11 to 1,454.66, Charts) index eased 0.1 percent. The tech-fueled Nasdaq Composite (down 1.03 to 2,564.67, Charts) fell 0.3 percent.

Bond prices jumped as stock investors sought safety in other assets. The dollar slipped versus other major currencies. Oil prices recovered after early declines and gold prices rose.

Stocks started Monday on a positive note due to strong Intel earnings, but the early advance was unsustainable as investors continued to worry about the broad economy.

The Dow fell 250 points on Friday after a surprise drop in August payrolls raised worries that the problems in the housing and financial markets are spreading to the rest of the economy.

The weak jobs report raised bets that the Federal Reserve will need to cut a key short-term interest rate when it holds its policy meeting next week.

But those bets were challenged Monday by comments from a number of Fed officials.

San Francisco Fed President Janet Yellen said that although market turmoil could hurt the economy, rate policy isn't there to bail out investors, AP reported.

Earlier, Atlanta Fed president Dennis Lockhart said that the central bank has to take any information on the labor market seriously, but that last Friday's report is backward-looking and should be viewed alongside recent signs of solid retail sales and still-strong consumer spending.

Also, over the weekend, Fed president Charles Plosser said that although the weak August jobs report was not encouraging, it was not reason alone to cut interest rates.

Yellen and Lockhart are not voting members of the Fed's policy committee, while Plosser, an alternate member, also does not vote.

Fed Governor Frederic Mishkin, who is a voting member of the policy committee, speaks later in the session.

The stock market is bound to remain very choppy in the lead up to that meeting, said Dave Hinnenkamp, CEO of KDV Wealth Management. "I think we're going to see relatively high volatility and any market increases will be met with profit taking."

In corporate news, chipmaker Intel (down $0.08 to $25.39, Charts, Fortune 500) said third-quarter revenue should top estimates, thanks to strong worldwide demand for its products, sending shares up initially. They were little changed later in the session.

Aluminum producer Alcoa (down $0.78 to $34.09, Charts, Fortune 500), a Dow component, continued to erode for a second session, losing 4 percent.

However, Intel was a notable standout to the upside, with many large technology shares falling, including Dell (down $0.56 to $26.60, Charts, Fortune 500) and Yahoo (down $0.41 to $23.35, Charts, Fortune 500).

A number of financial stocks fell, as investors continued to worry about the tightening of credit and the impact from the subprime mortgage mess.

Countrywide Financial (down $0.98 to $17.24, Charts, Fortune 500), the poster child for the subprime mortgage fallout, said late Friday that it will cut between 10,000 and 12,000 jobs, or 20 percent of its work force, over the next three months. Shares slipped 5 percent Monday.

A variety of metal and mining stocks fell, including gold, silver, and aluminum.

Railroad, trucker and airline stocks fell, pulling down the Dow Jones Transportation (down $11.48 to $2,788.01, Charts) average by 0.9 percent.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by 3 to 2 on volume of 1.0 billion shares. On the Nasdaq, losers topped winners by 3 to 2 on volume of 900 million shares.

Treasury prices rose, adding on to Friday's big rally on continued bets that the Fed will need to cut interest rates when it meets next week. The advance lowered the yield on the 10-year note to 4.31 percent from 4.38 percent late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and the yen.

U.S. light crude oil for October delivery rose 80 cents to $77.50 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery rose $1.30 to $711 an ounce.