"Problems in the financial sector are again scaring the market," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank. "It's obvious this issue is going to linger for some time."
The Dow Jones Industrial Average was down 35 points at 13,171, after earlier rising more than 80 points to a high of 13,288. Some of the Dow's technology components -- IBM and Microsoft -- provided support for blue chips.
But financial components AIG , American Express , Citigroup Inc. and J.P. Morgan Chase weighed on the Dow after the MBIA news.
MBIA shares slumped 25% after the bond insurer disclosed $8.14 billion of exposure to complex credit products known as CDO squareds.
Bear Stearns also lost early strength, falling 1.4%, after posting its first-ever quarterly loss as the company's mortgage-related write-down grew to $1.9 billion.
The S&P 500 index , which has a large proportion of financial stocks, lost 4.2 points to 1,448, while the Nasdaq Composite remained up, gaining 7.7 points to 2,608.
Leading tech shares, Oracle jumped 6.3% after reporting a 35% rise in fiscal second-quarter profit, topping Wall Street's expectations.
NetSuite , of which Oracle CEO Larry Ellison held 61% at the end of November, priced its IPO at $26, above the target range of $19 to $22. The company initially pitched its IPO at $13 to $16, then raised its range to between $16 and $19.
Investors also bought shares of Research in Motion Ltd. ahead of its quarterly report after the close.
Trading volumes showed 496 million shares exchanging hands on the New York Stock Exchange and 748 million trading on the Nasdaq. Declining issues topped gainers by 2 to 1 on the NYSE and by 16 to 11 on Nasdaq.
FedEx fell 1.5% after it reported a 6% profit fall, hit by rising fuel costs and weakness in the U.S. economy, and issued murky third-quarter guidance.
The market earlier received a boost after the government said the U.S. economy grew at a 4.9% annual pace in the third quarter, the fastest growth in four years. The 4.9% final estimate was unrevised from the previous estimate and was in line with expectations.
But inflation worries, which central bank officials have often cited recently, remained as the core personal consumption expenditure price index -- the Fed's favored inflation gauge -- rose at a 2% annual rate in the quarter, not the 1.8% previously reported.
In addition, downbeat weekly jobless claims and leading economic indicators data increased the safe-have appeal of fixed-income assets in thin market conditions ahead of next week's holiday.
The benchmark 10-year Treasury bond gained 4/32 to 101 29/32, yielding 4.014%.
The dollar rose against the euro but fell a touch versus the Japanese yen. Crude-oil futures rose 56 cents to $91.80 a barrel.
The Federal Reserve will also hold its second auction of $20 billion in 28-day funds..
Overseas, the People's Bank of China increased its interest rate to 7.47% from 7.29% to combat inflation, while the Bank of Japan held interest rates at 0.5% and said downside risks to the Japanese economy are growing.
The Nikkei 225 ended virtually flat in Tokyo. In London, the FTSE 100 rose 0.6%.
U.S. stocks had ended mixed Wednesday after a volatile day that featured mixed signals on the credit crisis, with a potential downgrade of bond insurers dulling a mostly positive auction of funds to banks by the Federal Reserve. The Dow industrials fell 25 points, the S&P 500 slipped nearly 2 points while the Nasdaq Composite rose nearly 5 points.
Accenture rose 7.2% after the conslting group posted a 34% profit rise and upped its 2008 earnings outlook. Rival Capgemini rose in Paris trading.
Nike rose 5% after the world's biggest sneaker maker reported a 10% profit rise, topping analyst forecasts.
Ruth's Chris Steak House dropped 6.4% after blaming a weaker economy for a lower of its earnings outlook.
On the M&A front, Eaton Corp. said it's buying two firms valued at as much as $2.8 billion to boost its electrical business.
By Nick Godt