After the rally, a retreat

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NEW YORK (CNNMoney.com) -- Stocks ended lower Wednesday after a mixed session turned sour in the last half hour of trade, with investors bailing out of technology, financials and some of the other leaders of the previous day's rally.

The Dow Jones industrial average (Charts) fell 83 points after posting modest gains during the session. The S&P 500 (Charts) index fell 0.7 percent, and the Nasdaq composite (Charts) lost 1.1 percent.

After the close, Merrill Lynch (Charts, Fortune 500) confirmed market rumors that NYSE-Euronext chief executive John Thain will take over the top spot at the bank, following Stanley O'Neal's exit.

Stocks had risen in the morning following a mild wholesale inflation report. But the tone turned murkier as the session wore on and investors considered rising oil prices and more questions about the bank sector. In the last half hour, a variety of stocks slumped, dragging down the broader market.

There wasn't one single factor that caused the late selloff, said Paul Mendelsohn, president of Windham Financial Services. He said that the spike in oil prices played a role in the decline, as did some weakness in big industrial stocks such as Caterpillar (Charts, Fortune 500) and 3M (Charts, Fortune 500), but that it was also just driven by traders wanting to take profits after Tuesday's run.

"People are coming up with all sorts of reasons for what caused the selloff, but it may just be all the volatility that's in the market right now," Mendelsohn said. "I think we're going to consolidate a bit."

On Tuesday, the Dow rallied nearly 320 points, scoring its second biggest one-day point gain of the year as investors bet that encouraging comments from Goldman Sachs and other banks meant that the worst of the credit market crisis was over.

But news of large writedowns from HSBC and Bear Stearns Wednesday reminded market participants that the outlook for the credit crisis remains murky.

Additionally, Tuesday's advance was largely fueled by short-covering, analysts said, and that didn't extend into Wednesday's session. Short covering is when investors who sold shares short to take advantage of a falling market have to buy them back.

Looking forward, stocks are in for more volatility through the end of the year, said Peter Cardillo, chief market economist at Avalon Partners. "We still have the same problems we had a week ago."

He was referring to oil prices above $90 a barrel, gold prices above $800 an ounce, a weak dollar and questions about the long-term fallout from the credit market crisis.

Airline stocks got a pop in the afternoon on reports that United Airlines' parent UAL (Charts, Fortune 500) and Delta Air Lines (Charts, Fortune 500) are considering a possible merger.

E*Trade Financial (Charts) rallied for a second session in active Nasdaq trading, after plunging roughly 60 percent Monday on rumors that it would need to file for bankruptcy.

But the broader financial seesawed during the session, as investors sold some of the previous day's advancers and continued to mull the outlook for the sector amid the subprime fallout.

Bear Stearns (Charts, Fortune 500) said it will take a $1.2 billion writedown and post a loss this quarter due to subprime losses. However, shares rose, perhaps on relief that the writedown was not even larger.

Also Wednesday, U.K.-based HSBC Holdings PLC (Charts) said it will take a writedown of $3.4 billion, due to its exposure to the U.S. mortgage market.

Banks have taken more than $40 billion in charges this year related to the mortgage market fallout, according to AP and Deutsche Bank estimates.

Walt Disney (Charts, Fortune 500), IBM (Charts, Fortune 500), Boeing (Charts, Fortune 500) and Microsoft (Charts, Fortune 500) were among the Dow 30's biggest losers.

Market breadth was negative. On the New York Stock Exchange, losers beat winners on volume of 1.49 billion shares. On the New York Stock Exchange, losers beat winners by nearly 3 to 2 on volume of 2.47 billion shares.

The Producer Price Index (PPI), a measure of wholesale inflation, rose 0.1 percent in October, short of forecasts for a rise of 0.3 percent. So-called core PPI, which strips out food and energy prices, was flat, missing forecasts for a rise of 0.2 percent.

A separate report showed retail sales rose 0.2 percent in the month as expected, while retail sales excluding autos rose a smaller-than-expected 0.2 percent.

A third report showed that business inventories rose 0.4 percent in September, as forecast.

The economic news was generally supportive for hopes that the Federal Reserve will keep cutting interest rates. However, it failed to boost markets, with investors holding back after Tuesday's run.

In other news, Fed Chairman Ben Bernanke said that the central bank will begin providing its economic forecast four times a year, instead of the current two. He also said that when the Fed gives its forecast, it will look out three years into the future, as opposed to the current two years. Bernanke was speaking to a conference on monetary policy at the Cato Institute.

The initiatives are part of Bernanke's intent to increase the level of communication between the Federal Reserve and consumers and businesses.

Treasury prices inched higher by the end of the session, lowering the yield on the 10-year note to 4.25 percent from 4.26 percent late Tuesday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar continued to slump against the euro. The greenback also inched higher against the yen.

U.S. light crude oil for December delivery rose $2.92 to settle at $94.09 a barrel on the New York Mercantile Exchange, bouncing back after several down sessions.

COMEX gold for December delivery rose $15.70 to $814.70 an ounce.