Wall Street ends volatile session mostly higher

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NEW YORK -- Wall Street finished an extremely volatile session mostly higher Tuesday after investors, still jittery about mortgage-related problems at the nation's major lenders, decided to interpret comments from the Federal Reserve as suggestive of another interest rate cut.

In minutes from their Oct. 30-31 meeting, Fed policy makers said their decision to lower rates for a second straight meeting "was a close call." But in a separate economic forecast, they pointed to slowing growth next year, an uptick in unemployment and moderating inflation -- which would seem to portend a possible rate decrease.

Though the markets are pricing in a high chance of a rate reduction Dec. 11, when the Fed meets next, investors were on edge until the closing bell Tuesday, and the major indexes changed direction several times while analysts sorted through the Fed statements.

Meanwhile, Freddie Mac posted a $2 billion quarterly loss Tuesday, escalating jitters about the government-sponsored mortgage lender and its larger counterpart, Fannie Mae. Also, an analyst downgraded Countrywide Financial Corp., pointing to continuing credit problems that had investors uneasy even before the Fed released its minutes.

"The headlines that were really roiling the market were Countrywide, Fannie Mae, Freddie Mac, and the FOMC minutes, which were discouraging for investors," said Joe Sunderman, vice president of financial market analytics at Schaeffer's Investment Research.

Countrywide's downgrade spurred market speculation that it might file for bankruptcy, which the company later denied. After plunging by more than 20%, Countrywide shares ended down 29 cents, or 2.7%, at $10.28.

"When there's lot of uncertainty in the market, the rumor mill runs full speed ahead," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. Some market participants had also speculated before the opening bell Tuesday that the Fed might hold an emergency meeting to cut rates.

The Dow Jones industrial average rose 51.70, or 0.04%, to 13,010.14, after making 100-point swings in either direction throughout the day. The eventual gain followed Monday's swoon of more than 200 points.

Broader stock indicators also ended higher. The Standard & Poor's 500 index rose 6.43, or 0.45%, to 1,439.70, and the Nasdaq composite index rose 3.43, or 0.13%, to 2,596.81.

Freddie Mac fell $10.76, or 28.7%, to $26.74, and Fannie Mae fell $9.33, or 24.8%, to $28.25.

Government bonds rose on the Fed's prediction of a slowing economy in 2008. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.05% from 4.08% late Monday. In late trading, the 10-year yield rose to 4.09%.

Meanwhile, oil prices surpassed $98 a barrel on Tuesday, raising concerns that inflation may not moderate as the Fed anticipates.

Investors want lower rates because they loosen up the credit markets and encourage corporate growth -- which has slowed recently because of the bad bets financial institutions have made on mortgages and mortgage-backed assets. Tuesday's releases from the Fed weren't a clear signal that the market has hoped for, and so stocks wobbled until the close.

Given Wall Street's erratic trading pattern since the summer, it won't be surprising if Tuesday's gains don't stick. The major stock indexes remain higher on the year, and Wall Street is desperately hoping they don't fall further, but an end-of-the-year rally is looking remote, given that stronger economic growth and a rate cut tend to be mutually exclusive.

"The stock market obviously likes when the Fed lowers rates, but maybe they're coming to grips with the fact that there's a reason why," said Joe Balestrino, a portfolio manager at Federated Investors Inc.

The dollar fell against most other major currencies, but rose against the yen. Gold jumped.

Commerce Department data on the housing market gave investors a fuzzy picture of the housing market. The report said that while housing starts rose in October, building permits fell.

Declining issues narrowly outnumbered advancers by on the New York Stock Exchange, where consolidated volume came to 4.74 billion shares, compared with 4.01 billion shares traded Monday.

The Russell 2000 index of smaller companies fell 1.00, or 0.13%, to 749.33. Small-cap companies are seen as more vulnerable in a downturn, especially since they tend not to have the multinational presence that larger companies can rely on to help their profitability.

Stock markets overseas advanced. In Asian trading, Japan's Nikkei stock average rose 1.12%, while Hong Kong's Hang Seng index rose 1.13%. In European trading, Britain's FTSE 100 increased 1.73%, Germany's DAX index advanced 1.58%, and France's CAC-40 gained 1.36%.
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