Stock rally rapidly unwinds

NEW YORK (CNNMoney.com) -- Stocks took a big jump at the open but gave up most of their gains over the course of the day, as the latest developments from the credit crisis stayed in the spotlight.

"We got an upside surprise from the announcement from the central banks," said Art Hogan, chief market analyst at Jefferies. But he said that the Fed's move to increase liquidity will only be worthwhile if banks loan the money out themselves - and that we haven't seen evidence of that yet.

Blue-chip indexes rocketed up at the open after 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.

But stocks took a sharp turn south Wednesday afternoon 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) ended up 0.31 percent, while the broader S&P 500 (Charts) index closed up 0.61 percent and the tech-fueled Nasdaq (Charts) composite was also up about 0.71 percent.

The markets' late decline was a big break from earlier in the day, when the Dow opened strong and was up 271 points early on.

Elsewhere, oil jumped over $4, and the dollar fell against the euro and rose against the yen. Treasury prices fell.

Here's a look at what was moving stocks near the close.

Thursday will see the release of the producer price index data, weekly jobless claims, and earnings announcements from Lehman Brothers (Charts, Fortune 500) and Costco (Charts, Fortune 500).

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 1.7 million shares. On the Nasdaq, advancers edged decliners by three to two on volume of 2.3 million shares.

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.

Treasury prices declined Wednesday, raising the yield on the baseline 10-year note to 4.08 percent.