Stocks extend gains

NEW YORK (CNNMoney.com) -- Stocks rose Wednesday morning, despite a bigger-than-expected writedown by Morgan Stanley, as the Federal Reserve's $20 billion auction appeared to draw strong demand from the financial sector.

The Dow Jones (INDU) industrial average added 0.3 percent 90 minutes into the session. The broader S&P 500 (INX) index gained 0.35 percent. The tech-fueled Nasdaq (INX) composite rose 0.2 percent.

Stocks managed gains Tuesday after a tough session in which strong earnings from Goldman Sachs (GS, Fortune 500) were countered by ongoing worries about the credit market crisis. After a shaky start Wednesday, investors looked to continue that modest advance, despite some negative corporate news.

Investors also reacted the results of the Fed's $20 billion auction launched on Monday. The first of four auctions showed strong demand, as the central bank loaned $20 billion at 4.65 percent. That was slightly below the discount rate of 4.75 percent.

In the latest woes for the banking sector, Morgan Stanley (MS, Fortune 500) posted a bigger-than-expected quarterly loss Wednesday morning and said it would take an additional $5.7 billion in writedowns on top of the $3.7 billion it had already announced, due to the subprime mortgage mess.

However, investors sent Morgan shares higher, along with other major banks including Lehman Brothers (LEH, Fortune 500), Merrill Lynch (MER, Fortune 500) and JP Morgan (JPM, Fortune 500).

Among other movers, homebuilder Hovnanian (HOV, Fortune 500) plunged 8 percent after reporting a quarterly loss late Tuesday that more than quadrupled from a year ago.

And in the latest bad news for the housing sector, the level of foreclosures was up 68 percent in November from a year ago, according to tracking service RealtyTrac. On the upside, foreclosures fell 10 percent from the previous month.

Shares of Sallie Mae (SLM, Fortune 500) were down nearly 16 percent as the lender held a shareholder conference call one week after cutting its 2008 profit forecast and saying it wasn't able to restart a failed $25 billion buyout.

In other news, shares of smart phone maker Palm (PALM) fell more than 8 percent after the company reported a loss and warned that revenue for the quarter would be lower than expected.

Market breadth was positive. On the New York Stock Exchange, winners topped losers eight to seven on volume of 370 million shares. On the Nasdaq, advancers narrowly edged decliners on volume of 550 million shares.

Treasury prices slipped modestly, lowering the yield on the 10-year note to 4.13 percent from 4.14 percent late Tuesday. Treasury prices and yields move in opposite directions.

U.S. light crude oil for January delivery rose $1.17 to $91.25 on the New York Mercantile Exchange after the government's weekly report showed lower than expected crude supplies.

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

COMEX gold for February delivery fell 90 cents to $806.50 an ounce.