Stocks struggle on bank woes
Wall Street ends a volatile session little changed as worries about Lehman, AIG and WaMu counter gains in oil and metal stocks.
NEW YORK (CNNMoney.com) -- Stocks were volatile Friday as investors faced uncertainty about whether Lehman Brothers and Washington Mutual are likely to find buyers and whether AIG will shed its sour mortgage-related assets.
The broad financial sector problems were countered by strength in oil services and other commodity stocks and the automakers. Oil prices seesawed to a higher close as Hurricane Ike headed toward the Texas Gulf Coast.
The Dow Jones industrial average (INDU) lost a few points, while the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) both posted slim gains.
All three major stock gauges had been on both sides of unchanged throughout the session.
Stocks rallied Monday as investors breathed a sigh of relief about the government bailout of Fannie Mae and Freddie Mac, tumbled Tuesday on Lehman worries, gained Wednesday after Lehman announced its third-quarter loss, rallied Thursday on Lehman buyout hopes and then ended mixed Friday.
"We keep trying to move higher, but it doesn't hold," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "Short term, the market can't get any traction."
Lehman Brothers (LEH, Fortune 500) shares slipped 13.5% Friday, building on Thursday's 42% decline as reports that it is actively looking for a buyer vied with hints that the government's help will be more limited than it was when Bear Stearns almost collapsed in March. Treasury Secretary Henry Paulson reportedly does not want to use federal money to help with the sale, as he thinks the situation is different than the one with Bear Stearns. (Full story)
AIG (AIG, Fortune 500) slumped almost 31% as investors worried about its bad mortgage bets and ability to raise capital.
That prompted Standard & Poor's to put AIG's ratings on CreditWatch with negative implications, after the close of trade.
Following that, reports surfaced that AIG has hired JP Morgan to help it figure out how to raise money, with a deal expected to be announced over the weekend. AIG is holding a conference call Monday. Shares fell 3% in after-hours trading.
Washington Mutual (WM, Fortune 500) shares were volatile after reports surfaced that Bank of America will make a play for it. Late Thursday, the company had issued a statement that sought to reassure investors about its financial well-being.
Lehman, AIG and Washington Mutual were this week's poster children for the problems in the banking sector, which have dragged on stocks on and off this year.
"We had credit excesses that got out of hand and those are not going to be cleaned up overnight," said Douglas Peta, market strategist at J. & W. Seligman.
"The economy is going to have to work through this for a while," he said. It doesn't mean the stock market can't rise before this, but I think we need to see the completion of this on the horizon before stocks can rally."
A Lehman deal is expected to be announced over the weekend, sure to influence trading next week. Investors will also be keeping an eye on Hurricane Ike.
The week ahead brings quarterly results from Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), among others.
On the economic front, the big event of the week is the Federal Reserve policy-setting meeting on Tuesday. The central bank is expected to hold rates steady at 2%, but it could begin lowering rates by the end of the year due to the continued economic slowdown. (Full story)
Banking: A Financial Times report Friday said that Bank of America (BAC, Fortune 500) was considering making a joint bid for Lehman with JC Flowers, the private equity firm and China Investment Co., the sovereign wealth fund. The report also said that U.K. bank Barclays is interested in buying Lehman.
Bank of America, Lehman and Barclays all declined to comment when reached by CNN.
Lehman stock has plunged this week amid escalating fears about the firm's solvency in the wake of steep losses tied to bad mortgage bets. Seeking to cool fears, the company announced its third-quarter results Wednesday, a week ahead of schedule.
Lehman said it lost nearly $4 billion in its fiscal third-quarter, its biggest quarterly loss since it went public in 1994. The company also said it was slashing its dividend and that it would sell some assets, including a large stake in its investment unit, which includes profitable money manager Neuberger Berman.
But the news failed to soothe investors, amplifying pressure for the company to take action soon. ( Full story.)
Lehman is by no means alone in stoking investor worries.
After seeing its stock plunge this week on worries about its future, Washington Mutual (WM, Fortune 500) said late Thursday that its capital position and credit outlook were stable. However, rating agencies Fitch and Moody's both cut their credit ratings on the company after the news.
A report in American Banker Friday afternoon said that JPMorgan is in advanced talks to buy WaMu. Shares initially spiked 15% on the report, before erasing those gains and closing lower. JPMorgan shares fell 1.2%. (Full story)
Among other movers, Dow component General Electric stumbled 5% on worries about whether it will be able to sell its private-label credit card business, according to reports.
Other movers: A variety of energy, metal and utility shares bounced, with those sectors recovering after having declined in recent weeks.
Dow components Alcoa (AA, Fortune 500), Chevron (CVX, Fortune 500), DuPont (DD, Fortune 500) and Exxon Mobil (XOM, Fortune 500) all gained soundly. The Amex Oil index gained 3.1% and the Amex Gold Bugs (HUI) index jumped 10.5%.
General Motors (GM, Fortune 500) and Ford Motor (F, Fortune 500) continued to gain on optimism about federal loans for the troubled automakers.
But chain stores such as Wal-Mart Stores (WMT, Fortune 500) and Home Depot (HD, Fortune 500) slid on the morning's surprisingly weak retail sales report.
Market breadth was negative On the New York Stock Exchange, losers beat winners by nine to seven on volume of 1.31 billion shares. On the Nasdaq, decliners beat advancers by a narrow margin on volume of 2.01 billion shares.
Economy: Retail sales dropped 0.3% in August, surprising economists who were expecting sales to rise 0.3% after falling a revised 0.5% in July. Sales excluding volatile autos fell 0.7%, worse than an expected drop of 0.2%.
A reading on wholesale inflation was more positive. The Producer Price Index (PPI) fell 0.9% in August after rising 1.2% in July. Economists thought PPI would fall 0.5%, on average, according to a Briefing.com survey. The so-called core PPI, which excludes volatile food and energy prices, rose 0.2%, in line with estimates. Core PPI rose 0.7% in July.
The University of Michigan's initial reading on September consumer confidence rose to 73.1 from 63 in late August, reflecting the impact of falling commodity prices. Economists thought it would rise to 64, on average.
Another report showed a bigger-than-expected rise in July business inventories, a gain of 1.1% versus forecasts for a rise of 0.5%. Inventories rose a revised 0.8% in the previous month.
Fuel prices: Oil prices seesawed as Hurricane Ike headed closer to the Texas Gulf Coast. (Full story).
U.S. light crude oil for October delivery fell 65 cents to $100.22 a barrel, briefly touching below $100, after ending the previous session at the lowest close since March 24.
Oil prices have lost more than $45 a barrel since peaking at $147.27 on July 11.
Gas prices rose overnight, climbing for the third day in a row as Hurricane Ike strengthened, according to a national survey of credit-card activity.
Other markets: In global trade, European and Asian markets ended mostly higher.
In the bond market, Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.72% from 3.64% late Thursday. Prices and yields move in opposite directions.
The dollar fell versus the euro and rose against the yen.
COMEX gold for December delivery rose $19 to $764.50 an ounce. 
