U.S. Stocks Turn Higher On Fannie, Freddie News

NEW YORK (MarketWatch) -- U.S. stocks on Wednesday shifted higher, with equities mostly gaining in February as the month nears an end, after the Federal Reserve signaled more rate cuts ahead and restrictions were removed on mortgage giants Fannie Mae and Freddie Mac.

"There is a clear bias toward further rate cuts; they are more interested in keeping the economy stable and growing than they are with inflation," said Matt King, chief investment officer, Bell Investment Advisors.

After declining about 50 points after the open, the Dow Jones Industrial Average was more recently ahead, rising 40.79 points to 12,725.71, a gain of 0.6% on the month.

Of the Dow's 30 components, 20 were trading higher, with financial stocks fronting the advance, with Citigroup Inc. up more than 3%, while American Express Co. almost 1% higher.

Declines on the Dow were led by drug manufacturer Merck & Co. , off nearly 1.5%.

Off the Dow, shares of Fannie Mae were up 3%, while Freddie Mac gained more than 2%.

The Office of Federal Housing Enterprise Oversight disclosed the pending removal of the restrictions imposed in the wake of accounting mistakes at Fannie and Freddie, the biggest providers of cash for U.S. home loans. .

"They took the reins off Fannie and Freddie; now they can buy any type of loan, which is definitely a positive, as it will create some liquidity for the housing market," according to King.

The S&P 500 Index rose 3.58 points to 1,384.87, while the Nasdaq Composite Index gained 11.89 points to 2,356.88.

Volume on the New York Stock Exchange surpassed 769 million, and for every stock on the decline nearly two were posting gains. On the Nasdaq, 550 million shares traded hands, and advancers outpaced decliners 3 to 2.

Fed factor

On Capitol Hill, Bernanke told Congress recent data had confirmed U.S. economic growth is slowing, with the housing-market downturn spilling into the broader economy. .

Ahead of Bernanke, two separate reports highlighted the economic downturn, with the Commerce Department reporting new-home sales fell 2.8% in January, while orders for durable goods declined 5.3%. .

"We're getting a mixed bag of economic data; it's still unclear whether we're in a slow-growth mode or a recession," said King.

Gold records

Markets saw the U.S. dollar trading around record lows, and gold and oil futures probing record highs.

The battered dollar fell to a new record low of $1.512 against the euro, with the euro most recently buying $1.5113, compared to $1.4981 in late U.S. trade Tuesday. .

On the New York Mercantile Exchange, crude futures edged up after the government reported a larger-than-expected rise in U.S. inventories, with the lead month recently up 3 cents at $100.91 a barrel, after hitting a fresh record high of $102.08 earlier on. .

Also, gold for April delivery was recently up $12.10 at $961 an ounce, after touching a record $967.70 an ounce. .

Active issues

Among shares on the move, Amgen Inc. and Johnson & Johnson both lost ground after a study published late Tuesday in the Journal of the American Medical Association showed that treating anemia with erythropoiesis-stimulating agents increases the risk of certain blood clots and death among cancer patients.

Shares of Autodesk Inc. fell in reaction to the design software maker's quarterly results showing virtually flat earnings, below analysts' estimates.

Microsoft Corp. edged down slightly. The software giant was fined 899 million euros ($1.35 billion) by the European Commission for failing to comply with its 2004 antitrust ruling. It brings the fines levied by European regulators for alleged anti-competitive activity to 1.68 billion euros. .

Luxury-home builder Toll Brothers Inc. continued its recent advance, adding 3.7%. It swung to a fiscal first-quarter loss of $96 million and claimed that "ceaseess talk" about a recession is dampening the mood of consumers.

Shares of Nortel Networks Corp. sank more than 12% after the telecom-equipment maker reported steep fourth-quarter losses and said it would cut 2,100 jobs. .

International markets were mixed. Asian stocks generally rose, led by a 3.1% advance from the Hang Seng after a Hong Kong tax-break package. Stocks in Europe were little moved, with the FTSE 100 closing 0.2% lower in London.

On Tuesday, a $15 billion stock-buyback plan from International Business Machines Corp. helped trigger the second-straight surge in U.S. stocks.


By Kate Gibson