Stocks vacillate amid lingering economic fears

Wall Street proceeded cautiously Thursday, with stocks moving in a narrow range as investors weighed corporate earnings reports that signaled further economic deterioration, but drew some comfort from a better-than-expected reading on new jobless claims.

The Labor Department reported that initial jobless claims fell by more than economists anticipated to 554,000 last week. The claims remain near last week's 26-year high, and the four-week moving average for claims is up, but investors had been bracing for a gloomier reading.

However, a batch of mixed corporate earnings reports on Thursday kept investors on edge.

FedEx Corp. reported a 3 percent rise in quarterly earnings, but announced further cost cuts as demand continues to wane. Ingersoll-Rand Co. cut its fourth quarter earnings forecast by more than half, and motor home maker Winnebago Industries Inc. swung to a loss.

But Discover Financial Services swung to a profit and homebuilder Lennar Corp.'s quarterly loss was smaller than last year's.

Meanwhile, a private research group's measure of the economy's health fell again in November and its six-month rate of decline hit the worst level since 1991.

That reinforced perceptions that the economy's troubles are far from over. The market remains unsure how steep and prolonged the recession will be.

But investors seemed pleased that President-elect Barack Obama's aides were assembling a two-year stimulus plan that could cost $850 billion. The package would reportedly include new jobs, middle-class tax relief and expanded aid for the poor and the unemployed.

A stimulus for U.S. consumers became an especially high priority earlier this month, when the Labor Department reported that U.S. employers slashed more than half a million jobs in November.

Still, amid very light trading, stocks struggled to take a definitive direction.

"The economic data today was not as bad, but it wasn't great," said Jon Biele, head of capital markets at Cowen & Co. "You might see a little window dressing going on into year end, but the market is just churning."

In midday trading, the Dow Jones industrial average fell 38.71, or 0.44 percent, to 8,785.63. The Standard & Poor's 500 index rose 1.58, or 0.17 percent, to 906.00, while the Nasdaq composite index rose 4.39, or 0.28, to 1,583.70.

The Russell 2000 index of smaller companies rose 3.51, or 0.72 percent, to 490.10.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to just 482.74 million shares. Volume will likely remain light for the remainder of the year as investors break for the holidays.

On Wednesday, the Dow fell nearly 100 points as enthusiasm over the Federal Reserve's historic rate cut Tuesday dampened on news of a larger-than-expected loss at Morgan Stanley and layoffs at Cooper Tire and Rubber Co. and Newell Rubbermaid Inc.

In recent weeks, the market has moved away from the wild 300-point swings of September, October and early November, an encouraging sign for many analysts who believe Wall Street is beginning to show some stability.

Since the S&P 500 and the Dow hit multiyear lows on Nov. 20, the Dow has risen 16.8 percent, while the S&P 500 is up 20.2 percent. Both indexes are still down more than 30 percent for the year.

"People in general are less pessimistic," said Bernie McGinn, chief executive of Alexandria, Va.-based McGinn Investment Management. "They are still not optimistic, but they are less pessimistic, and I think the market reflects that."

McGinn also attributed some of the recent calm to the typical end-of-year slowdown - which is even more pronounced this year in comparison with the unprecedented turmoil of the fall.

"I think that people are getting into the holiday season earlier this year," he said. "People have been through the ringer this year and they just want the year to be over."

Biele echoed that sentiment, saying that investors are simply "exhausted."

"You can't really glean anything in this market right now," he said. "Everybody is still very much in cash. ... Nobody is going to make any bets right now."

On Thursday, Obama named three veteran regulators to round out his economic team and vowed to overhaul regulatory rules to prevent a repeat of the financial and economic turmoil the country is currently suffering.

If confirmed by the Senate, Mary Schapiro would take over the Securities and Exchange Commission. Schapiro, who currently heads a nongovernment regulatory group for securities firms, is also a former head of the Commodity Futures Trading Commission and former member of the SEC.

The SEC faces mounting criticism for its failure to protect investors and detect trouble on Wall Street. Its latest blemish comes from the fraud investigation of prominent money manager Bernard L. Madoff, who is accused of running a $50 billion Ponzi scheme.

Meanwhile, the Bush administration is seriously considering "orderly" bankruptcy as a way of dealing with the desperately ailing U.S. auto industry.

The White House is expected to soon unveil ways to provide emergency aid to the automakers, which have said they could run out of cash within weeks without government help.

The fate of Detroit's three biggest automakers was put in serious jeopardy last week after the Senate failed to pass a $14 billion bailout for Chrysler LLC and General Motors Corp. Ford Motor Co. has said in the past that it does not need government money to survive.

GM shares dropped 59 cents, or 13 percent, to $3.78. Ford shares tumbled 27 cents, or 8.6 percent, to $2.87. Chrysler is not publicly traded.

Energy stocks were also big decliners Thursday as the price of oil plunged below $38 a barrel. BP PLC dropped $1.91, or 3.9 percent, to $47.68, while Chevron Corp. fell $1.68, or 2.2 percent, to $75.13.

Discover's earnings report sent shares soaring 14 percent, or $1.22 to $9.80. Other credit card companies also rose. MasterCard Inc. added 45 cents, or 4.5 percent, to $10.46, while Capital One Financial Corp. rose 37 cents to $29.84.

Long-term Treasury prices soared, sending yields down to new record lows. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.12 percent from 2.19 percent late Wednesday. The yield on the popular three-month T-bill - whose yield has at times gone negative due to frenzied buying - was at 0.01 percent, unchanged from late Wednesday.

The strong surge in buying has been stoked by the Fed's decision Tuesday to lower its federal funds rate target to a range of zero to 0.25 percent, and express an interest in buying long-term government debt.

The dollar rose against the euro and the British pound, but fell against the Japanese yen. Gold prices declined.

Light, sweet crude fell $1.11 to $38.95 a barrel on the New York Mercantile Exchange.

In Asia, Japan's Nikkei stock average rose 0.64 percent, and Hong Kong's Hang Seng index rose 0.24 percent. In afternoon trading in Europe, Britain's FTSE 100 rose 0.15 percent, Germany's DAX index rose 1.02 percent, and France's CAC-40 fell 0.24 percent.

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