Stocks Recover From Steep Losses To Finish Mixed

(MarketWatch)  NEW YORK (MarketWatch) -- U.S. stocks experienced a dramatic reversal in the final hour of trade Thursday, helping the Dow industrials to recover most of a 340-point deficit earlier to finish slightly lower.

"There was a little bit of a technical bounce," said Mike Malone, trading analyst at Cowen & Co. "I wouldn't' read too much into it, given the magnitude of the swings we saw earlier."

The market earlier fell sharply, briefly entering correction territory with major indices losing over 10% from their July highs, after weak economic data and more distress signals from Countrywide Financial, the nation's largest mortgage lender, fueled overall nervousness about credit markets.

The late bounce still helped the Dow Jones Industrial Average recover most of its earlier losses to finish down 15 points at 12,845, after losing over 340 points to a low of 12,517.

Out of the Dow's 30 components, 13 managed to close higher, led by financial shares JP Morgan Chase , Citigroup Inc. and American Express .

Financials bounced led by a nearly 13% in shares of Bear Stearns . The company, which heralded the recent credit market crisis when two of its hedge funds ran into trouble, has been talking with potential investors, including Chinese banks about new funding, said Richard Bove, analyst at Punk Ziegel & Co.

The firm is talking about selling of as much as a 20% stake in the company, Bove said

Also helping financials, a report by rating-agency Fitch said that U.S. brokerage firms are well funded and have sufficient capacity to absorb losses from marking their assets to market.

The S&P 500 also reversed earlier steep losses to gain 4.5 points, or 0.3%, to gain 1,411, while the technology-laden Nasdaq Composite was off 7.8 points, or 0.3%, at 2,451.

Overall market ends lower

Volume at the New York Stock Exchange came to 2.9 billion, with declining stocks still beating advancers 20 to 13. At the Nasdaq, 3.3 billion shares traded, and decliners topped advancing issues 17 to 13.

Shares of Countrywide Financial Corp. slid 11% after the troubled mortgage lender said it had drawn down all of an $11.5 billion credit facility to funds its operations as difficulty raising money in the credit markets poses a potential threat to its business.

Standard & Poor's also cut Countrywide's credit rating after the mortgage lender was hit by liquidity and earnings pressures.

Dow-component General Motors Corp. fell 2.4%. GM owns 49% of mortgage originator Residential Capital LLC, which had its ratings cut to junk status by Moody's Investors Service, which cited "significant" funding volatility in the single-family mortgage market.

Also on the Dow, tech bellwether Intel Corp. initially gained after its upgrade by Credit Suisse from underperform to outperform. But its stock was off 0.5%.

Technology stocks were mostly lower, with PC makers Apple Inc. , Dell Inc. and Hewlett-Packard Co. all losing ground. Dow stock HP was off 0.2% ahead of its quarterly earnings release after the market close. Read

Economic data fueled concerns

The market first saw losses accelerate in afternoon trade after the Philadelphia Federal Reserve said its index of regional activity showed no growth in factories in the region in August. .

"It's ongoing concern over the health of the credit markets which is the real catalyst for the market," said Mike Malone, trading analyst at Cowen & Co. "The Phily Fed just added to that, but things are feeling pretty heavy at the moment."

The market briefly trimmed its losses after the Federal Reserve added $12 billion into the banking systems, with the New York Fed saying the move is part of an effort to keep the Fed funds rate at 5.25%.

Deconstruction

Ahead of the opening bell, the Commerce Department reported home builders in July started construction on the fewest number of new homes in morthan a decade, with housing starts falling 6.1% to a seasonally adjusted annual rate of 1.381 million.

In other early data, the Labor Department said first-time applications for state jobless benefits climbed for last week for a third week in a row to their highest level since June 16.

"Problems with Countrywide remain a focal point, adding to concerns that credit is drying up in the mortgage market. Materials are one of the weaker sectors in the Dow on speculation the financial distress will weigh on global growth," wrote analysts at Action Economics LLC.

Beazer Homes USA Inc. also took a hit, its shares down 2.7% as troubles mount for one of the country's larger home builders. The company's stock has lost about two-thirds of its value during the past three months as it struggles with problems including multiple probes by investigators.

Global drop

Late-day volatility again exerted downward pressure on U.S. stocks on Wednesday, with the S&P 500 losing an entire year's gains. The Dow industrials fell 167 points, the S&P 500 fell 19.8 points and the Nasdaq Composite dropped 40 points.

Stocks worldwide dropped on Thursday, with losses from Korea to Turkey to Britain, in the wake of the unfolding credit-market downturn, started by problems in the U.S. subprime mortgage market.

Historical trends suggest the Dow should be trading in the range of 13,700 to 14,000, according to a study published by the Georgia Tech College of Management, which based its estimate on analyzing the relationship between the Nominal Gross Domestic Product and share prices from 1916 through the end of the second quarter of this year.

St. Louis Fed President William Poole told Bloomberg News in an interview that only a calamity would justify an interest-rate cut.

U.S. Treasury Secretary Henry Paulson said the recent turmoil in the markets will hurt U.S. economic growth but won't prompt a recession since the U.S. economy is "strong enough to absorb the losses," The Wall Street Journal reported.

Commodities sell-off

Crude oil and other energy futures fell sharply, with crude for September deliver tumbling $1.80, or 2.5%, at $71.53 a barrel on the New York Mercantile Exchange.

Crude oil for September delivery tumbled $2.33, or 3%, to close at $71 a barrel on the New York Mercantile Exchange. The action in crude was a sharp turnaround from the previous trading session, when the contract rose 95 cents, or 1%, to close at $73.33 a barrel.

Dow component Exxon was down 1.4% after reports it suffered a contractual setback to increase output from the world's second-largest offshore field in Abu Dhabi.

Treasury prices rallied, pushing yields lower, in response to the weak U.S. economic data, with the benchmark 10-year note finishing up 31/32 at 101 6/32, its yield falling to 4.60%.

The yen remained sharply higher against its rivals early Thursday, after hitting a 13-month high vs. the U.S. dollar. The euro was down 0.1% at $1.3412 and the pound sterling down 0.2% at $1.9824. The dollar fell as low as 113.55 yen in early trading and subsequently recovered a bit, trading at 114.21 yen vs. 116.26 yen late Wednesday.

Gold futures tumbled more than 3% amid a worldwide sell-off in stocks fueled by deepening troubles in the credit and subprime markets. Gold for December deliver tumbled $21.70, or 3%, to $658 an ounce. Read