Stocks struggle for direction

NEW YORK (CNNMoney.com) -- Stocks continued to seesaw in Friday afternoon trade, leaving major gauges mostly lower, as Wall Street weighed more troubling news from the financial sector and a better-than-expected employment report.

The Dow Jones industrial average (Charts) edged lower with 2-1/2 hours remaining in the session, after falling by as much as 121 points earlier in the day.

The broader S&P 500 index (Charts) fell 0.1 percent, while the tech-laden Nasdaq (Charts) bucked the trend, gaining 0.6 percent.

Just a day earlier, stocks plunged on credit market fears, which were sparked by an analyst downgrade of the banking giant Citigroup (Charts, Fortune 500). The Dow industrials posted its fourth-biggest loss of the year as the 30-stock index fell 362 points.

Those problems remained in focus following troubling news from the nation's largest brokerage Merrill Lynch (Charts, Fortune 500), whose shares tumbled over 8 percent on the New York Stock Exchange.

The Wall Street Journal reported Friday that No. 1 U.S. brokerage firm Merrill Lynch (Charts, Fortune 500) engaged in deals with hedge funds that may have been aimed at delaying the recognition of losses on its subprime mortgage investments.

The paper reported the Securities and Exchange Commission is likely to look at those arrangements.

Also weighing on Merrill shares were comments from Deutsche Bank analyst Michael Mayo, who downgraded his rating of the company's stock and estimated that Merrill would suffer an additional $4 billion in writedowns in the coming quarter due to risky investments on mortgage securities.

All told, Mayo said he anticipated another $10 billion in writedowns in the fourth quarter, but some investors worry that because the value of many of these toxic mortgage-backed securities has not been determined, financial firms may have to take additional losses.

"The problem is what they are writing down is a constantly moving part," said Peter Boockvar, equity strategist at Miller Tabak. "No one know the extent for continued writedowns because the underlying value continues to change."

Other major financial players such as Goldman Sachs (Charts, Fortune 500) and Morgan Stanley (Charts, Fortune 500) fell sharply, while the AMEX securities broker/dealer index (Charts) slipped 2.4 percent.

The better-than-expected October employment report was not enough to sustain stocks' initial bounce. The reading said the economy added 166,000 jobs, more than double what was originally forecast, while the unemployment rate held steady at 4.7 percent.

Both economists and Wall Street were closely watching the report for any signs whether this summer's mortgage crisis had spilled over to the broader economy.

On the earnings front, Chevron (Charts, Fortune 500) said its quarterly earnings tumbled 26 percent - more than Wall Street had expected - due to tighter refining margins.

Media conglomerate Viacom (Charts) booked better-than-expected results, the company said Friday, helped by the sale of its music publishing business. Viacom shares gained 2.5 percent on the New York Stock Exchange.

Viacom's former corporate sibling CBS (Charts, Fortune 500) posted a better-than-expected gain in earnings after the close Thursday, but its shares slipped after the Writers Guild said that its members would strike the nation's television networks.

Oil prices rebounded Friday as the December contract for a barrel of light sweet crude gained $1.81 to $95.30 a barrel on the New York Mercantile Exchange.

Treasury prices gained, lowering the yield on the benchmark 10-year note to 4.3 percent from 4.36 percent late Thursday.

The dollar retreated against the euro, but was higher versus the yen.

Gold prices gained, as COMEX gold for December gained $11.30 to $805 an ounce.

In overseas trading, stocks sold off around the world Friday. Asian stocks fell sharply, with Japan's Nikkei index dropping 2 percent. Major markets in Europe finished lower.