U.S. Stocks Mostly Down, With Nasdaq Hit The Hardest

NEW YORK (MarketWatch) -- U.S. stocks on Tuesday tilted solidly lower as cheer over the government's plan to invest billions in banks gave way to worries over the economy, which especially dented shares in the consumer-discretionary and technology sectors.

"With a recession still in the offing, tech earnings remain a concern and in other sectors that don't have the benefit of heavy government backing," analysts at Action Economics said.

The Dow Jones Industrial Average surged as much as 400 points early on but then backed off, with the blue-chip index veering in and out of positive and negative territory.

With less than two hours of trading to go, the Dow was down 216.72 points, or 2.4%, at 9,170.89, with 24 of its 30 components trading lower.

"Basically the financial system is on life support. We just gave the patient the equivalent of a few hundred volts of electricity and got his heart restarted, but that doesn't mean we can send him home," commented Marc Groz, managing member of Topos LLC, on the continued volatility.

The Dow's financial shares paced blue-chip gains, with Bank of America Corp. up 12.1% and Citigroup Inc. ahead 14.2%.

"Citigroup and Bank of America are helping the Dow on news the two companies will be among nine major financial institutions to get a capital investment from the U.S. government," said Frederic Ruffy, options strategist at WhatsTrading.com.

Off the Dow, other financial shares also gained, with KeyCorp rallying 35.7% and National City Corp. gaining 40%.

Also bolstering the Dow, shares of Johnson & Johnson gained 2.3% after the pharmaceutical giant nudged its 2008 earnings outlook higher on "solid" sales growth for its consumer products, as well as a favorable foreign-exchange rate. .

Along with the broader market, consumer-discretionary and technology shares weighed on the Dow, with Coca-Cola Co. down 7.6% and Microsoft Corp. falling 5.6%.

Fellow Dow component Intel Corp. fell 7.9% ahead of its third-quarter earnings report, slated for release after the close.

The S&P 500 Index declined 20.04 points, or 2.2%, to 983.31, with financials leading gains among the index's 10 industry groups.

Hardest hit, the Nasdaq Composite Index was most recently down 73.99 points, or 3.9%, at 1,770.26.

Volume on the New York Stock Exchange topped 1.1 billion, and for every nine stocks on the rise, seven were on the decline. On the Nasdaq, 820 million shares changed hands, as decliners edged ahead of advancers, 5 to 4.

Ahead of the open on Wall Street, investors reacted favorably as Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke discussed the government's bank-rescue plan, offering reassurances that it would work.

"These are healthy institutions, and they have taken this step for the good of the U.S. economy," Paulson said in prepared remarks, referring to the plan to make direct investments in major banks.

Earlier, President Bush formally announced the U.S. would follow the Group of Seven nations' rescue plan in a series of temporary measures. .

"The recent easing of Libor and other key short-term indicators suggest that the credit freeze might actually be beginning to thaw. Let's hope this isn't a head fake. I'm beginning to lose my taste for antacids," said Kevin Giddis, managing director at Morgan Keegan & Co.

Illustrating how massive government bailouts and debt and deposit guarantees might be doing as intended, short-term lending rates fell again.

In the energy pits, crude futures gained 36 cents at $81.55 a barrel.

As for metals, gold futures gained, recently up $6.1 at $848.6 an ounce. .

Manic Monday

U.S. stocks rocketed higher on Monday, gaining for the first day in nine after coordinated government actions around the world revived confidence in the banking sector and credit markets.

Shares of General Motos Corp. on Tuesday were up another 2.1%, on the heels of surging more than 30% Monday on reports that the auto giant had contemplated a merger.

Away from investors' focus on the banking-sector rescue, several companies sounded notes of caution about their profit prospects.

Johnson Controls Inc. forecast 2009 earnings to drop, while PepsiCo Inc. reported profit fell in the third quarter and said it would slash 3,300 jobs; Ingersoll-Rand Co. cut its earnings outlook.

By Kate Gibson