Dow reverses course, finishes flat

NEW YORK (CNNMoney.com) -- Stocks drifted in negative territory for most of the session Wednesday on new housing and subprime woes, before paring some of their losses late in the session on speculation that the Federal Reserve may take additional action.

The Dow Jones industrial average (Charts) finished nearly 1 point lower, or less than 0.1 percent, after falling by more than 200 points earlier in the day.

The tech-fueled Nasdaq index (Charts) posted the biggest decline, falling nearly 0.9 percent, while the broader S&P 500 index (Charts) lost 0.2 percent.

The late session rally, which picked up in earnest during the last hour of trading, could have been attributed to any number of factors said Todd Clark, director of stock trading at Nollenberger Capital Partners Inc. in San Francisco. That included technical buying or speculation that the Federal Reserve was going to take action before next week's policy meeting or that central bankers would institute a bigger-than-expected rate cut.

"One story going around is that the Fed will take discount window action or a 50 basis-point cut," said Clark.

The Federal Reserve told CNNMoney.com it does not comment on market rumors.

The central bank kicks off its two-day policy meeting next Tuesday, where it is widely expected to cut the federal funds rate, a key lending rate that affects what consumers pay on various types of loans, by a quarter percentage point.

Last month, the Fed cut the closely-watched federal funds rate, a key overnight bank lending rate that determines what consumers pay on various types of loans, to 4.75 percent.

Stocks stumbled at the start of the session after Merrill (Charts, Fortune 500) reported a quarterly loss of $2.3 billion and said it was taking a larger-than-projected writedown of $7.9 billion because of losses from bad subprime mortgage bets. Merrill shares finished nearly 6 percent lower on the New York Stock Exchange.

The selloff accelerated after the National Association of Realtors said existing home sales sank more than expected last month, to its slowest pace on record. The industry group also revealed that the median home price fell 4.2 percent from a year ago in September.

Those two areas of concern, which have troubled Wall Street since this summer's market meltdown, combined with a jump in the price of oil above $87 a barrel, kept traders on edge, said Fred Dickson, chief market strategist at D.A. Davidson & Co.

"A lot of bad news is swamping a reasonable list of good earnings reports," Dickson said earlier in the session. "Traders seem to be focused on the negative news."

On the earnings front, Amazon.com (Charts, Fortune 500) saw its sales and earnings surge in the most recent quarter, the online retailer reported late Tuesday. But the results were not as robust as some investors had hoped, sending its shares tumbling nearly 12 percent on the Nasdaq.

On Wednesday, Dow component Boeing (Charts, Fortune 500) surprised investors by delivering a 61 percent jump in quarterly results that topped forecasts, while the company also raised both its earnings and revenue guidance for 2007.

And shares of Corning (Charts, Fortune 500) slipped 6 percent in morning trade after the telecom equipment maker said it expects its fourth-quarter earnings to fall short of analysts' estimates, even after it reported better-than-expected earnings.

Broadcom Corp. (Charts) stock tumbled 17 percent after the semiconductor maker reported late Tuesday that net income fell in the most recent quarter from a year ago.

Leading home builder Pulte Homes (Charts, Fortune 500) is among the firms due to report results after the close. The company is projected to report a large loss.

In corporate news, Microsoft (Charts, Fortune 500) announced after the closing bell it would take a $240 million stake in Facebook beating out Google (Charts, Fortune 500) in a battle for a piece of the social networking company.

Market breadth was negative as decliners topped advancers on the New York Stock Exchange by nearly 2 to 1 on volume of 1.58 billion shares. Losers beat winners by more than 2 to 1 in Nasdaq trade as 2.78 billion shares traded hands.

Treasurys staged a modest rally, lowering the yield on the benchmark 10-year note to 4.33 percent, down from 4.40 percent late Tuesday.

The dollar moved modestly lower against the euro and eased versus the yen.

In commodity trading, light, sweet crude for December gained $1.83 to settle at $87.10 a barrel on the New York Mercantile Exchange, after U.S. oil inventories took a surprise dip in the latest week.

COMEX gold for December gained $2.50 to $765.60 an ounce.