Wall Street falls back as credit worries linger

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NEW YORK -- Wall Street pulled back Thursday as ongoing anxiety about widening credit problems was enough to offset initial investor optimism about a $2 billion capital infusion into troubled mortgage lender Countrywide Financial Corp.

The market gave up a moderate early gain, but fluctuations were to be expected given the amount of uncertainty about the credit markets, and the fact that Wall Street had a big advance Wednesday with the Dow Jones industrials rising 145 points.

Bank of America Corp. announced late Wednesday it will invest the money into the nation's largest mortgage lender to help it better weather problems with defaulting subprime loans. The investment was seen as a way to not only prop up Countrywide, but also prevent any further losses at the mortgage lender from hurting the underlying economy.

The move was reassuring to investors, although a number of major banks and home lenders still face difficulties. On Wednesday, Lehman Brothers Holdings Inc. said it would close its BNC Mortgage unit and slash 1,200 jobs; HSBC Holdings PLC and Accredited Home Lenders Holding Co. also said they would eliminate jobs.

"Moving up or down a little is OK because I think investors need some time to digest all the news out there, and they are still really hoping the Federal Reserve will lower interest rates," said Neil Massa, equity trader at John Hancock Funds. "You're not seeing the rush to sell, nor the panic buying, that we've had before."

The Fed's cut of the discount rate, the interest it charges banks to borrow, did little to alleviate concern about distressed subprime mortgages and a difficult credit environment, although it did remove some of the volatility that has torn the stock market over the past month. Investors are hoping the Fed will take the more dramatic step of lowering its benchmark federal funds rate.

The market showed little response on Thursday when policymakers injected another $17.3 billion into the banking system to help boost liquidity, adding to some than $62 billion added since last week.

In midday trading, the Dow fell 36.66, or 0.28%, to 13,199.47.

Broader indexes were narrowly lower. The Standard & Poor's 500 index was down 6.47, or 0.44%, at 1,457.61, and the Nasdaq composite index fell 18.24, or 0.71%, to 2,534.56.

Bonds, which have rallied in recent weeks as investors sought safer securities, were little changed on Thursday. The 10-year Treasury note's yield was unchanged at 4.65%.

Oil fell 2 cents to $69.24 a barrel on the New York Mercantile Exchange. Crude prices have fallen after it appeared there was no major damage to oil rigs as Hurricane Dean pushed through Mexico.

The dollar was mixed against other major currencies, while gold prices moved higher.

Analysts say the markets are expected to be somewhat choppy until Wall Street gets a clearer picture about the Fed's intentions when it meets on Sept. 18. Besides cutting its discount rate, the interest the Fed charges banks, it has pumped more liquidity into the financial system.

Five banks have responded to the discount rate cut by borrowing from the Fed. Borrowing money from the central bank is usually seen as a negative action by banks, but the move was designed to bolster the financial system. The weekly Fed report on bank borrowing from what's known as its discount window will be released after the market closes, giving more insight into other banks that have participated.

There was little in the way of economic data for traders to consider Thursday. The Labor Department reported new claims for unemployment benefits dropped to 322,000 last week, a sign the labor market remains in good shape despite the credit crunch. But some investors might be looking ahead to Friday's Commerce Department report on new home sales and prices.

Keeping Wall Street upbeat was BofA's bailout of Countrywide, which last week borrowed about $12 billion from U.S. banks to keep it going. The deal, which could ultimately give the bank a 16% stake in Countrywide, was viewed as a sign that U.S. financial companies are willing to step in.

Bank of America shares rose 16 cents to $51.81, while Countrywide rose $1.27, or 5.8%, to $23.09.

Turkey and pork processor Hormel Foods Corp. said fiscal third-quarter profit fell 4% due to weakness in its chunk chicken and Chi-Chi's sauce businesses, but it reaffirmed guidance for the fourth-quarter and full year. Shares rose 16 cents to $34.56.

After the closing bell, earnings reports from retailers including Gap Inc., Aeropostale Inc. and Bebe Stores Inc. will be closely watched as another snapshot of consumer spending.

IAC/InterActive Corp. weighed on technology stocks after the owner of Ticketmaster ended talks Wednesday for a new long-term deal with Live Nation, the nation's biggest concert promoter. There have been several news reports that a memo within Ticketmaster said the company no longer expects to renew the agreement with its largest customer.

Shares of IAC fell 48 cents to $26.99.

Hot Topic Inc. was another reason the Nasdaq was weaker during the session after the retailer reported a second-quarter loss, and offered a lackluster outlook. Shares fell 80 cents, or 9.1%, to $7.95.

Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume came to 443.7 million shares.

The Russell 2000 index of smaller companies was down 7.93, or 0.99%, at 790.63.

Growing investor confidence was reflected Thursday in big gains overseas markets. Britain's FTSE 100 rose 0.17%, Germany's DAX index rose 0.44%, and France's CAC-40 rose 0.51%. In Asia, Japan's Nikkei stock average closed up 2.61%, and Hong Kong's Hang Seng Index rose 2.77%.
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