Stocks give back big gains

NEW YORK (CNNMoney.com) -- U.S. blue chips took a sharp turn south Wednesday as investors absorbed news from Bank of America and Wachovia that their mortgage-backed securities had lost even more value than the banks had thought.

The Dow Jones industrial average (Charts) was up 0.2 percent, while the broader S&P 500 (Charts) index went up 0.3 percent and the tech-fueled Nasdaq (Charts) composite was also up about 0.3.

The markets' late decline was a big break from earlier in the day, when the Dow opened strong and was up 270 points at one point.

U.S. light crude oil for January delivery soared $4.37 to settle at $94.39 a barrel on the New York Mercantile Exchange after the government reported a surprise decline in crude oil and heating fuel supplies.

Before the open, the Fed said it was trying to stoke short-term lending by coordinating a response with the central banks of Europe, Canada, Britain and Switzerland. It said it is creating a temporary credit facility that banks could tap to make loans to individuals and businesses.

"The coordinated efforts by central banks to add liquidity was well received by the market," said Peter Cardillo, chief market economist at Avalon Partners. "It's a step in the right direction, but it doesn't totally alleviate the real estate problem - and I suspect the market is now beginning to focus on that."

The Wednesday trade report showing record import prices also suggested to investors that the economy would see higher inflation in the near-term, tempering gains, he said.

Stocks tumbled Tuesday after the central bank cut its key short-term interest rate by a quarter of a point, disappointing investors who had hoped for a half of a percentage point cut.

In other economic news, the U.S. trade deficit grew in October compared to the previous month, according to the government's latest reading that showed the gap between imports and exports was slightly larger than Wall Street expectations.

In corporate news, the financial service sector continued to be hit hard, as Wachovia and Bank of America announced negative mortgage-related news and investors wondered whether the Fed move would provide adequate liquidity.

Wachovia (Charts, Fortune 500) announced that it was doubling its loan loss provision for the fourth quarter, saying the value of its mortgage-backed securities fell by another $240 million. Shares fell nearly 4 percent.

Bank of America (Charts, Fortune 500) said in a regulatory filing that its fourth-quarter writedowns of collateralized debt obligations will be greater than the $3 billion it estimated a month ago, sending shares down 3.6 percent.

New Citigroup CEO Vikram Pandit said he may cut spending and sell some of the company's assets in order to shore up the financial giant's capital as mortgage-related losses rise, but shares of Citigroup (Charts, Fortune 500) tumbled 5.4 percent.

Exxon Mobil (Charts, Fortune 500) said late Tuesday that it plans to build a floating liquefied natural gas terminal off the coast of New Jersey. The stock rose 2.5 percent in NY trade after falling overnight in Frankfurt.

Telecom giant AT&T (Charts, Fortune 500) gained over 5 percent as it announced solid guidance at its analyst day Tuesday.

Cisco (Charts, Fortune 500) shares jumped over 3 percent as analysts from Jefferies and Goldman Sachs praised its growth potential in coming years.

Strong sectors Wednesday include homebuilding, telecom, commercial real estate and health care.

Market breadth was positive. On the New York Stock Exchange, winners led losers five to two on volume of 900,000 shares. On the Nasdaq, advancers edged decliners by three to two on volume of 1.3 million shares.

Treasury prices tumbled Wednesday, raising the yield on the baseline 10-year note to 4.11 percent.

In currency trading, the dollar fell against the euro and rose against the yen.