Stocks Follow a Choppy Track

Updated from 1:40 p.m. EDT

Stocks in New York continued to trade in and out of the red Thursday as traders nervously responded to a decline in oil prices, mixed economic data and a speech by Treasury Secretary Henry Paulson.

After opening higher, the major averages quickly dipped in and out of negative territory, but all three were lately posting gains. The S&P 500 was up just 5 points at 1,343, while the Dow Jones Industrial Average was up 46 points at 12,075. The Nasdaq was posting the largest move higher, up 32 points at 2,461.

Prior to the start of the session, the Labor Department said jobless claims for the week ended June 14 declined by 5,000 to 381,000, but came in higher than analysts' expectation of 375,000 and remain at elevated levels.

Investors were also chewing over manufacturing data from the Philadelphia Federal Reserve. Released midmorning, the Philly Fed's Business Outlook Survey's index of business conditions for June fell to -17.1 from -15.6 in May. The index revealed a much weaker outlook than analysts' prediction of -10.

"The index is performing better than was the case during the past two recessions," wrote Tony Crescenzi, chief bond market strategist at Miller Tabak and contributor to TheStreet.com's sister site, RealMoney.com. "In the months leading up to the 2001 recession, for example, the index on general business conditions fell to as low as -37.2. During the 1990 recession, the index fell to as low as -48.2.

"Factory output will likely be underpinned in the summer months by the recent uptick in retail sales, which, in the context of lean business inventories, will likely lead to re-stocking, even if only temporarily," wrote Crescenzi.

Doug Roberts, chief investment strategist for Channel Capital Research, wrote that the Philly Fed numbers "indicate that even though the country may be able to avoid entering a recession this year, the economy is still in a very fragile state. It may be stabilizing but shows no indication of any major improvement."

James Paulsen, chief investment strategist at Wells Capital Management, said that the mixed economic data and a decline in crude oil prices have contributed to the market's uncertain action. "Crude has sold of almost $2, and you have pretty benign labor numbers," said Paulsen. "We had a positive first-quarter real GDP growth rate and by most estimates we have a positive second quarter. Where's the recession?" Paulsen pointed to positive retail sales numbers for March and April that aren't attributable to tax rebates.

Furthermore, "Unemployment claims stubbornly won't go up as they should in a recession," Paulsen said. "You've got this policy train coming down the track with party gifts for everybody," with "much more fiscal stimulus, much more dollar stimulus" on the way.

Treasury Secretary Henry Paulson also spoke on regulatory changes in the financial markets that would expand the Fed's role in preventing a potential failure like the one faced by Bear Stearns earlier this year. Paulson said that high oil prices would continue to prolong the U.S.'s economic slowdown. He said that the economy would slowly recover from its current slump, although such a rebound would take time and called for increased authority for the Fed to help the U.S. financial system in times of crisis.

Paulson's pronouncements came on the heels of continuing trouble for the financials. Two former Bear Stearns fund managers were arrested today on charges stemming from significant bets their hedge fund made on subprime paper.

Separately, hundreds of real estate industry employees have recently been indicted in a Justice Department investigation into mortgage fraud.

Citigroup (C) CFO Gary Crittenden announced that the bank could face significant second-quarter writedowns related to Citi's exposure to subprime mortgages, leveraged buyout loans and other assets. Other banking blue-chips Bank of America (BAC) and JPMorgan Chase (JPM) were also trading lower.

Elsewhere in the space, shares of UBS (UBS) were hit on a Credit Suisse downgrade to neutral from outperform. Ducking the sector selloff, insurance behemoth American International Group (AIG) shares climbed slightly on a Citigroup upgrade to buy from hold.

In autos, billionaire investor Kirk Kerkorian raised his stake in Ford (F) to 6.49% and announced he would provide additional capital to facilitate the company's turnaround. Meanwhile, General Motors (GM) will delay redesigns for its SUVs and trucks as it moves toward more fuel-efficient products, a report said. GM is reviewing its product portfolio in the wake of declining demand for its heavier, less-fuel efficient offerings, a spokesman told The Wall Street Journal.

Boeing (BA) shares received a slight boost after the Government Accountability Office approved of its protest of a $35 billion Air Force contract awarded to competitors Northrop Grumman (NOC) and European Aeronautic Defense and Space.

Electronics retailer Circuit City (CC) announced a widened first-quarter loss of $1 a share, but that topped the consensus estimate for a $1.07 loss.

Also reporting earnings was Pier 1 Imports (PIR). The home-furnishings retailer announced a narrowed first-quarter loss but fell short of analyst estimates even as it improved margins. Shares got hammered, down more than 18% in early trading.

In the technology space, Hewlett-Packard (HPQ) announced it would reorganize its highly profitable printer unit in the face of declining growth for the business.

Apria Healthcare (AHG) shares soared on a $1.6 billion buyout by private equity firm Blackstone Group. The price represents a 33% premium over Apria stock's Wednesday closing price.

Other health services stocks were hurting on an earnings warning from Coventry Health Care (CVH). Aetna (AET) and WellPoint (WLP) fell along with Coventry.

Activist investor Carl Icahn failed to get his slate of nominees elected to Biogen Idec's(BIIB) board of directors at the biotech company's annual meeting today.

Airline companies Continental (CAL) and United parent UAL (UAL) announced that the two would work together to expand their networks and combat rising costs. Continental would also join United in the Star Alliance, the companies said. Continental and UAL both rose about 7%.

Turning to commodities, crude oil was trading down $2.31 to $136.68. Rebel fighters had attacked a Nigerian oil field earlier, and Royal Dutch Shell (RDS.A) said it would shut down production. Later, China announced that it would raise retail gas and diesel prices by an unexpected 18%, in a move that is expected to curb what had been skyrocketing demand in the fast-growing economy. Gasoline prices continued to tick down, to $4.073 from $4.075 Wednesday. Gold was up $11.50 at $905.00.

The energy sector experienced a selloff as oil declined. Petrobras (PBR) and Occidental Petroleum (OXY) were among the stocks trading lower.

Meanwhile, the Agriculture Department projected that cereal, sugar and poultry prices are set to increase at a higher-than-expected rate. The USDA cited increased global demand for U.S. food products as well as crop-damaging floods in the Midwest as causes for the continued price inflation.

Markets overseas were mixed. Tokyo's Nikkei and the Hong Kong Hang Seng dropped more than 2%, while in Europe, the FTSE was slipping 0.8%, and the DAX was down 0.1%.

Bond prices were declining. The 10-year note was down 13/32 to yield 4.19%, and the 30-year bond was lower by 11/32 to yield 4.74%.

The dollar was gaining slightly against the euro and the yen but declining sharply, 0.7%, against the pound at $1.9738.

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