Stocks on Wall Street Come Off Lows

Updated from 9:45 a.m. EDT

Another rally in oil prices had stocks off to a sluggish start as the third quarter got underway, but the major averages were gradually coming off their morning lows thanks to bullish analyst calls on the financial sector and stronger-than expected manufacturing data.

The Dow Jones Industrial Average was recently down 29 points at 11,321, and the S&P 500 was off 3 points at 1277. The Nasdaq was down 7 points at 2286.

Crude oil continued to weigh on stocks. Recently, oil was up $2.40 to $142.40 a barrel on concern that Israel would bomb Iran over its nuclear program, causing supply disruptions and potentially stoking a regional conflict in the Middle East. Gold was adding $10.20 to $938.50.

On the corporate front, several financial firms were working to improve or eliminate their exposure to the housing market. Wachovia (WB) said it would stop offering its controversial Pick-A-Payment mortgages.

Meanwhile, CIT Group (CIT) announced it would be selling its home lending business to Lone Star Funds for $1.5 billion in cash and $4.4 billion in debt. The company said it will also get rid of its manufactured housing portfolio to Vanderbilt Mortgage and Finance. CIT said it was seeking to eliminate uncertainty caused by exposure to the housing market.

In response to its own credit crunch - related woes, Swiss bank UBS (UBS) announced the resignation of four directors and new corporate governance. The new structure will draw a clearer line between the responsibilities of the board and those of senior management.

Some analysts saw bright spots for the troubled financial sector. UBS upgraded Capital One (COF), American Express (AXP) and Discover Financial (DFS) to neutral from sell, and Morgan Stanley initiated coverage on Lehman Brothers (LEH) and Goldman Sachs (GS) with overweight ratings.