Stocks close little changed after BP agreement for victim fund eases uncertainty about company
NEW YORK – NEW YORK (AP) — BP's agreement to put $20 billion into a fund for victims of the Gulf of Mexico oil spill lifted the stock market off its lows and sent the major indexes to a narrowly mixed finish.
The oil company also said Wednesday it has canceled a dividend payment totaling about $2.6 billion that was scheduled for June 21. It also won't declare a dividend for the second and third quarters. Investors saw the news as an end to the uncertainty about BP's stability, and that helped steady the overall market. The Dow Jones industrial average rose about 4 points, while the Standard & Poor's 500 index fell less than a point and the Nasdaq composite index was virtually unchanged.
BP's plans to place $20 billion in a fund to compenste victims were announced after a meeting between BP executives and President Barack Obama at the White House. Traders had been questioning how BP will handle the mounting costs of the spill, which began April 20 when a rig operated by BP exploded.
"One source of uncertainty has been at least partially resolved," said Brian Gendreau, a market strategist with Financial Network Investment Corp.
The market began the day by falling on news that home construction and applications for building permits slumped in May following the end of a homebuyer tax credit. Meanwhile, FedEx Corp. released a disappointing profit forecast for the fiscal year that began June 1, and that raised more questions about the economic recovery. The package delivery company is seen as a barometer of the economy because shipping demand tends to increase as business conditions improve. The stock fell almost 6 percent.
The Commerce Department's report on housing raised concerns that weaker demand for homes will hurt an economic rebound. Construction of homes and apartments fell 10 percent from a month earlier to an annual rate of 593,000, well below the 650,000 economists had forecast. A 17 percent drop in construction of single-family homes was the largest since January 1991.
Applications for building permits fell 5.9 percent to the lowest level in a year. Analysts had forecast an increase. Demand for permits is an indicator of future homebuilding activity. The weaker-than-expected numbers come after a homebuyer tax credit expired in April.
Kevin Smith, a housing market analyst at Chapdelaine Credit Partners in New York, said the drop in the home construction and permit numbers extends a string of choppy readings since October, and that it's too soon to tell how housing will hold up. He noted that the previous month had been the best in more than two years.
"It's going to be a bumpy ride," Smith said. He said housing won't make a strong recovery until unemployment falls and overall confidence grows.
The homebuyer's credit was part of the government package of stimulus measures designed to help the economy recover from the mortgage and financial crises of 2008. Investors have been uneasy about what would happen to the economy when the government started to withdraw those measures.
Wednesday's trading reflected the juggling act investors have been doing for months. While many of the economic signs in the U.S. show the recovery is proceeding, news like the home construction figures and the FedEx forecast have created doubt about the strength of the rebound. Events like the oil spill, which raises the prospect of a weakened oil giant as well as severe economic fallout from the disaster, have also unnerved traders. And economic problems remain in several European countries.
The Dow rose 4.69, or 0.05 percent, to 10,409.46, its fourth advance in five days. During morning trading, the Dow was down as much as 72.
The S&P 500 fell 0.62, or 0.06 percent, to 1,114.61, and the Nasdaq crept up 0.05 to 2,305.93.
Losing stocks were ahead of advancers by 3 to 2 on the New York Stock Exchange, where volume came to 1.17 billion shares.
Bond prices edged higher, pushing down interest rates. The yield on the benchmark 10-year Treasury note slipped to 3.27 percent from 3.31 percent late Tuesday.
The Dow is still down more than 7 percent from the 2010 high of 11,205.03 it reached April 26.
Stocks also steadied after the euro pulled off its lows. A Spanish newspaper reported that the International Monetary Fund and European Union were trying to come up with a financial rescue for Spain. That hit the euro and pushed the dollar higher. Officials in Spain denied the report. The country, like Greece and Portugal, is facing high debt loads. The euro fell to $1.2318. Last week it was a four-year low of $1.1878
U.S. markets have been tracking the moves of 16-nation because it is seen as a measure of confidence in Europe's economy. European countries are in the midst of cutting spending, and investors are concerned that those cutbacks could curtail the region's economic rebound, and in turn, the U.S. recovery.
FedEx fell $4.94, or 6 percent, to $78.07. The company said its fiscal 2011 outlook was based on the assumption of a continued "moderate recovery" in the global economy.
BP rose 45 cents, or 1.4 percent, to $31.85. The company's stock is down by nearly half since the day of the explosion, when it was trading at about $60.
Homebuilders fell after the government's report. Toll Brothers Inc. fell 15 cents to $18.78, while KB Home fell 22 cents to $12.93.
Crude oil rose 72 cents to $77.66 per barrel on the New York Mercantile Exchange. Gold climbed.
The Russell 2000 index of smaller companies fell 2.64, or 0.4 percent, to 666.13.
Britain's FTSE 100 rose 0.4 percent, Germany's DAX index gained 0.3 percent, and France's CAC-40 rose 0.4 percent.