U.S. Stock Indexes Scale Back Early Climb As Lehman Cheer Fades

NEW YORK (MarketWatch) -- U.S. stock indexes on Wednesday scaled back earlier gains as investors found only mild solace from Lehman Brothers Holdings Inc.'s plan to shore up its finances, and from chip maker Texas Instruments' affirmation of its third-quarter outlook.

"The stock market is generally in a funk, but you'll have days where we rally. It's a combination of bargain hunting and investors' hopes, wishes and desires that we're in the late stages of the mortgage mess, that they are willing to step in and do a little buying," said Paul Nolte, director of investments at Hinsdale Associates.

"The Fannie Mae rally lasted all of one day, and we managed to take all of it back yesterday. And Lehman is a lesser player than Fannie or Freddie," Nolte said, questioning the duration of any move higher.

After climbing about 100 points early in the session, the Dow Jones Industrial Average was more recently at 11,250.11, up 19.38 points, or 0.2%.

Of the blue-chip index's 30 components, just 12 retained gains, which were fronted by the Caterpillar Inc. , up 2.9%.

Boeing Co. led the early laggards, falling 2.6% after Defense Secretary Robert Gates canceled a $35 billion air tanker competition between Boeing and Northrop Grumman Corp , saying the next administration can make a decision after a "cooling off" period.

Off the Dow, shares of Northrop fell 1.3%.

The S&P 500 edged fractionally up to 1,225.05, while the Nasdaq Composite climbed 4.03 points, or 0.2%, to 2,213.84.

Energy and materials led sector gains among the S&P's 10 industry groups, with financials pacing the decliners.

Lehman reported a $3.9 billion loss for the third quarter, and said it would spin off the "vast majority" of its commercial-real-estate assets into a new company.

Earlier, the Korea Development Bank issued its own statement saying talks with Lehman about a potential deal collapsed over price and the broader market.

After an early move higher, Lehman's shares were lately off 2.4%. .

Volume on the New York Stock Exchange topped 465 million, and advancers beat decliners roughly 4 to 1. On the Nasdaq, 304 million shares were exchanged, and advancers passed declining stocks 4 to 1.

Crude up

Oil futures got a lift after OPEC's surprise decision to reduce production quotas by roughly 500,000 barrels a day. However, the International Energy Agency cut its estimates of 2008 and 2009 global oil demand.

On the New York Mercantile Exchange, oil futures fell 76 cents to $102.50 as energy traders also factored in fresh data on U.S. petroleum inventories. .

Shares of ImClone Systems rose 7.2% after the biotechnology company said it had received an offer of $70 a share from an unspecified company, topping last month's bid of $60 a share from Bristol-Myers Squibb Co. . .

FedEx Corp. lifted its first-quarter earnings view to $1.23 from a previous estimate of 80 cents to $1 a share, citing the recent drop in oil prices.

And, chipmaker Texas Instruments Inc. said it expects third-quarter sales of $3.33 billion to $3.47 billion, tightening up its previous forecast range of $3.26 billion to $3.54 billion. The company also said it foresees earnings of 42 cents to 46 cents a share. It had expected 41 cents to 47 cents a share. .

"The company indicated that all segments were tracking consistent to expectations and that, unlike last quarter, it has a good handle on distributor plans," said Deutsche Bank analysts.

Asian and Europe markets lost ground, with the Nikkei 225 slipping 0.4% in Tokyo and the FTSE 100 losing 0.9% in London.

On Tuesday, U.S. stocks ended sharply lower, erasing most of the prior day's gains on the government's move to rescue Fannie Mae and Freddie Mac .

By Kate Gibson