Stocks sink after struggling for direction

NEW YORK (CNNMoney.com) -- Stocks seesawed before moving lower in midday trade as investors mulled remarks from Federal Reserve Chairman Ben Bernanke, who voiced concern about economic growth while downplaying recession fears.

The Dow Jones industrial average (Charts) lost 0.5 percent two hours into the session, just a day after credit market fears sparked a selloff and sent the 30-stock index plunging 361 points.

The tech-fueled Nasdaq (Charts) fell 1.25 percent, hurt by a big decline in shares of tech bellwether Cisco.

The broader S&P 500 index (Charts) eased 0.2 percent.

Testifying before Congress' joint economic committee, Bernanke told lawmakers that the central bank is concerned about the subprime mortgage crisis and sky-high oil prices, which pose a risk of higher inflation and slower economic growth.

However, Bernanke downplayed recession fears, saying that economy should continue to grow in 2008, but at a much slower pace than in recent quarters.

Some investors interpreted Bernanke's remarks with underlying optimism, including William Hummer, senior vice-president at Wayne Hummer Investments.

"I think it's good news for the markets that there is not greater consternation there," said Hummer. "They are making note of the problems, but definitely not sounding the alarm."

Last week, the Fed cut the fed funds rate by a quarter percentage point, but hinted that it might not continue to cut rates when policymakers convene again in December.

Right now, investors are pricing in a 78 percent chance that the Fed will again lower interest rates by a quarter percentage point in December.

Credit market fears, which sent stocks reeling a day earlier, remained in focus after Morgan Stanley (Charts, Fortune 500) said late Wednesday it would take a $3.7 billion writedown because of bad bets on subprime mortgages. The news, however, followed much speculation that the investment bank would make such an announcement, sending Morgan Stanley shares nearly 4 percent higher.

Dragging down the technology sector were shares of Cisco Systems (Charts, Fortune 500), which lost 7.3 percent after following analysts' predictions that corporations will scale back on technology spending in the months ahead. The network equipment maker reported improved earnings late Wednesday, but the results were not as strong as Wall Street had hoped.

Before the opening bell, Ford Motor Co. reported it narrowed its losses more than expected. Ford (Charts, Fortune 500) shares climbed 2 percent in morning trade on the New York Stock Exchange.

Dow component American International Group (Charts, Fortune 500) reported disappointing results after the closing bell Wednesday, blaming the battered housing market and tighter credit conditions.

And media giant News Corp. (Charts, Fortune 500) reported a decline in earnings from a year ago after Wednesday's closing bell, although it topped analysts' expectations, helped by strong box office results from films such as "The Simpsons Movie".

Retail sales eased for the second straight month in October, major retailers reported Wednesday, a worrisome sign for this year's holiday shopping season.

Wal-Mart (Charts, Fortune 500), the world's largest retailer, reported an increase in sales at the low end of its forecast.

But wholesale club retailer Costco (Charts, Fortune 500) posted better-than-expected results, helped by strong sales outside the United States.

Oil prices retreated but continued to remain near record level as light, sweet crude for December rose $1.11 to $97.48 a barrel. Just a day earlier it reached a new trading high of $98.62 a barrel.

Gold prices continued to remain record levels as COMEX gold rose $9.80 to $843.30 an ounce.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 4.30 percent from 4.33 percent late Wednesday.

In currency trading the dollar again eased against the euro after the European Central Bank voted to keep interest rates unchanged. The greenback was narrowly lower against the yen.

Overseas, Asian markets finished sharply lower, while European shares were mixed in afternoon trade.