NEW YORK – The S&P 500 and Nasdaq rose Tuesday as a signal that the Federal Reserve might cut its benchmark interest rate soon muted persistent concerns about withering credit markets.
The Fed would use "all available tools" to calm financial markets, its chairman, Ben Bernanke, told Sen. Christopher Dodd, chairman of the Banking Committee, during a meeting. His pledge fueled speculation of an early cut in the fed funds rate, the central bank's main policy tool.
But the president of the Federal Reserve Bank of Richmond, Jeffrey Lacker, poured cold water on the optimism, saying a rate change due to market turmoil would only be warranted if it hurts the inflation or growth outlook.
"Their goal (with the Dodd meeting) was to give the market a positive psychological boost to calm it, and I think they've succeeded on that front," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore. "The issue is what about tomorrow."
Slumping energy stocks pushed the Dow industrials into negative territory as Exxon (XOM) Mobil Corp fell after Hurricane Dean faltered before reaching key oil facilities. Oil futures slipped below $70 a barrel for the first time since July 2.
Technology shares outperformed the rest of the market, led by iPod maker Apple (APPL) Inc . Its shares gained 4.4 percent to $127.57 on the Nasdaq after analysts at UBS AG said iPhone sales could top the brokerage's estimates and demand for Apple's desktop and notebook computers was strong.
The Dow Jones industrial average fell 30.49 points, or 0.23 percent, to end at 13,090.86. But the Standard & Poor's 500 Index inched up 1.57 points, or 0.11 percent, to 1,447.12. The Nasdaq Composite Index gained 12.71 points, or 0.51 percent, to 2,521.30.
After the closing bell, shares of Medtronic Inc fell 2 percent to $51.82 in extended trade as the medical device maker posted slightly weaker-than-expected revenues.
FINANCIAL AND AIRLINE STOCKS FLY
During the regular session, shares of Countrywide Financial Corp (CFC) jumped 10 percent to $21.79. The Wall Street Journal said Warren Buffett's Berkshire Hathaway Inc might buy part of the company. Countrywide, the largest U.S. mortgage lender, had taken a beating in recent sessions as financing for mortgage lenders dried up.
Speculation about a rate cut boosted other financial shares, with Goldman Sachs (GS) Group Inc up 1.6 percent at $175.48 on the New York Stock Exchange.
Wachovia Corp (WB), which raised its dividend 14 percent, rose 0.5 percent to $49.24.
Last Friday, the Fed cut the discount rate in a surprise move, causing stocks to rally. Now Wall Street hopes the Fed will cut the target for the federal funds rate, which banks charge each other on overnight loans.
Fallout from problems in the risky U.S. subprime mortgage sector have led to sharp declines in world stocks over the past month.
Late Monday, Capital One Financial Corp said it will close the wholesale mortgage unit it bought less than a year ago. Also, a real estate survey showed U.S. home foreclosures rose 9 percent in July from June and soared 93 percent from a year earlier.
Capital One's stock ended Tuesday's session up 2.6 percent at $68.47.
September crude fell $1.65, or 2.32 percent, to settle at $69.47 per barrel. Exxon shares dropped 1.6 percent to $83.15.
The drop in oil pushed up airline stocks such as the parent of American Airlines, AMR Corp , which gained 7.3 percent to $23.84.
Trading was below average on the New York Stock Exchange, with about 1.35 billion shares changing hands, well below last year's estimated daily average of 1.84 billion, while on the Nasdaq, about 1.72 billion shares traded, also below last year's daily average of 2.02 billion.
Advancing stocks outnumbered declining ones by a ratio of about 3 to 2 on the NYSE and by 16 to 15 on the Nasdaq.