Stocks Erase Worst of Losses

Amazon's report came at the same time that chipmakers Altera (ALTR Quote) and Broadcom (BRCM Quote) delivered dispiriting reports, putting a crimp on recent tech optimism. Altera and Broadcom spiraled 15.7% and 17% lower, respectively.

With those losses, the chip sector was the worst performer of the session, and the Philadelphia Semiconductor Sector Index sank 3.6%. The Nasdaq Financial 100 Index and the NYSE Financial Sector Index were losers as well, down roughly 1% each.

As for the gainers, the Amex Oil Index was higher by 1%, and the Philadelphia Oil Service Sector Index was better by 0.8%.

Breadth was weak. On the New York Stock Exchange 3.68 billion shares changed hands, as decliners topped advancers by a 5-to-3 margin. Volume on the Nasdaq reached 2.74 billion shares, with losers beating winners nearly 7 to 3.

As the market came off its lows, reports on television and the Internet said traders got interested in buying after passing around speculation that the Federal Reserve might be considering another rate reduction. There was no indication that the chatter was anything other than a rumor, but that doesn't mean investors wouldn't like to see one.

"The Fed should cut anyway, so if they make the move early it won't make any difference," said Paul Mendelsohn, chief investment strategist with Windham Financial. "The probability of the credit problem becoming more systemic is certainly worrying the Fed. There are companies out there with bigger problems than Merrill Lynch, so needless to say the Fed needs to let the market know the last rate cut wasn't a 'one-and-done' event. This issue needs to be contained."