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Mixed Day on Wall Street

Robert Holmes

Blue chips closed lower Thursday as traders fretted ahead of a speech from the Federal Reserve chairman, but tech shares managed to survive a rocky session and eke out a gain.

The Dow Jones Industrial Average fell 50.56 points, or 0.38%, to 13,238.73, with only six of the index's 30 components finishing with gains. The S&P 500 slipped 6.12 points, or 0.42%, at 1457.64.

The Nasdaq Composite tacked on 2.14 points, or 0.08%, at 2565.30. The index was boosted by a 1.6% rise in shares of tech giant Apple (AAPL Quote), which is expected to introduce an update to its iPod MP3 player line of products at a conference next week.

As has been the case for much of the pre-holiday week, volume was on the light side. On the New York Stock Exchange, roughly 2.65 billion shares changed hands, with decliners topping advancers by a 10-to-7 margin. Only 1.74 billion shares traded on the Nasdaq, with losers topping winners 3 to 2.

"We're in the kind of environment where the market is changing directions on a short-term basis based on very little news," said Edgar Peters, chief market analyst with Pan Agora. "There is a limit to how far we can go down, so we're showing some resilience."

On Wednesday, the major averages rebounded from a Tuesday selloff after news that Federal Reserve Chairman Ben Bernanke had sent a letter to New York Sen. Chuck Schumer saying the central bank would "act as needed" if the economy appeared to be in trouble due to the shakiness of the credit markets.

The Dow jumped 247.44 points, or 1.9%, to 13,289.29, and the S&P 500 added 31.40 points, or 2.19%, to 1463.76. The Nasdaq rose 62.52 points, or 2.5%, to 2563.16. The rally in the major averages erased most of Tuesday's large drop.

Market analyst Larry Wachtel said the alternating declines and rallies this week should be taken with a grain of salt, given the meager volume headed into the Labor Day holiday weekend.

"To say the moves this week are a legitimate reading on the health of the market is wrong," he said. "The lack of volume makes everything inconclusive, and these large moves are bankrupt of any real meaning."

For the most part, this week has been about the Fed. On Tuesday, the minutes from the last Fed meeting did nothing to impress traders, who are hoping for a rate cut at or by the central bank's Sept. 18 meeting, but the Bernanke note a day later provided something of an offset.

Bernanke will deliver a speech on the subject of housing and monetary policy Friday in Jackson Hole, Wyo.

"Now investors will question the Fed's statements from here on in, as to whether or not they are being totally forthright," Marc Pado, U.S. market strategist with Cantor Fitzgerald, wrote in a statement.

Meanwhile, headlines out of the mortgage lenders continued to erode confidence. Thornburg Mortgage (TMA Quote), which has dropped nearly 55% in August, offered convertible preferred stock in order to fund existing loans. Thornburg grossed $500 million through the offering.

Thornburg finished with a gain of 65 cents, or 5.8%, to $11.81.

"This subprime problem isn't going away for a long time," said Wachtel. "This certainly reflects the fact that there are going to be some sad readings when banks and lenders report."

Among economic data, the government reported that the domestic economy performed slightly better during the second quarter than initial reads had indicated. The Commerce Department said gross domestic product rose 4% last quarter, up from an advanced reading 3.4%.

Economists expected an upward revision to 4.1%. The year-over-year change in inflation was cut to 1.3% from 1.4%, and marked the lowest level in four years.

The GDP report was the second of three that will be released on the second quarter.

The Labor Department said initial jobless claims unexpectedly rose by 9,000 last week to 334,000. The less-volatile four-week moving average increased by 6,250 to 324,500.

Earnings were also in focus. H&R Block (HRB Quote) posted a fiscal first-quarter loss due to issues with its mortgage lending arm. Still, shares climbed 34 cents, or 1.7%, to close at $19.84.

Lending trouble also hit Freddie Mac (FRE Quote), which posted a 45% drop in second-quarter profit because of bad loans, missing Wall Street's target. Freddie Mac shed $3.18, or 5%, to $60.07.

Second-quarter profits also declined at Tiffany (TIF Quote), but the luxury-goods retailer still beat estimates and raised its full-year 2008 guidance. Tiffany rose $1.28, or 2.7%, to $49.40.

Also in the retail sector, Sears Holdings (SHLD Quote) said after the last close that both net income and sales fell during the second quarter. Results beat the Thomson First Call estimate on a per-share basis, but revenue was lower than expected.

Sears ended lower by $3.78, or 2.6%, to $141.83.

Meanwhile, Merrill Lynch downgraded the world's largest retailer, Wal-Mart (WMT Quote), to sell from neutral, citing shrinking margins. Shares lost 87 cents, or 2%, to $43.32.

After the bell, Dell (DELL Quote) reported a 46% rise in second-quarter profits, with sales topping Wall Street targets.

Away from stocks, the front-month October crude contract fell by 15 cents to close at $73.36 a barrel.

Treasury bonds were on the rise. The 10-year note added 15/32 in price, cutting the yield to 4.50%. The 30-year bond was up 29/32 in price to yield 4.82%.

Asian markets advanced overnight. Japan's Nikkei 225 gained 0.9%, and Hong Kong's Hang Seng jumped 2%. European bourses were also higher. London's FTSE 100 gained 0.9%, and Germany's Xetra Dax gained 0.7%.