Stocks Take Another Step Back

Fed funds futures are pricing in a 100% chance that the Federal Reserve will ease by 75 basis points when it meets March 18, and the odds stand at 28% for a full percentage point cut. Already, the Fed has lowered its fed funds target rate by 225 basis points since last summer to 3% in an effort to prevent a recession.

Financials, the key for the performance of the overall market for months, briefly helped to pull the market to the upside before subsiding. The NYSE Financial Sector Index slipped 0.1%. The Amex Securities Broker/Dealer Index and the KBW Bank Index each pared back from bigger morning gains to finish higher by 0.2% and 0.6%, respectively.

Several individual names in the sector likewise saw choppy action. Bear Stearns (BSC Quote), Lehman Brothers (LEH Quote), Morgan Stanley (MS Quote), Wells Fargo (WFC Quote) and Wachovia (WB Quote), all strongly ahead earlier, each crossed into negative territory before mostly ending in the green.

Treasury prices were climbing. The 10-year note was up 13/32 in price to yield 3.53%, and the 30-year bond added 5/32 in price, yielding 4.55%.

The new session also brought more bad news from Carlyle Group, whose publicly traded bond fund was hit this week with a default notice after failing to meet four margin calls. Now, the fund said it has gotten "substantial additional margin calls ... well in excess of [those] it received Wednesday" that it believes "could quickly deplete its liquidity and impair its capital." The fund also said it has received more default notices from its lenders.

Also, struggling lender Thornburg Mortgage (TMA Quote) tumbled anew after saying it will have to restate its results for 2007 and that there is substantial doubt about its ability to continue as a going concern because of a spate of margin calls.

Shares reversed to finish 8.5% higher, however, after PIMCO chief investment officer Bill Gross said he has been picking up hundreds of millions of dollars worth of "high quality" paper from the company, at least briefly fueling hopes that the firm can meet its margin calls. The stock proceeded to plunge 25.7% in after-hours trading.

Meanwhile, the Financial Times reported that Citigroup (C Quote) is considering an executive reshuffling in its U.S. consumer unit. Following the prior close, the financial giant laid out plans to retool its mortgage operations. Citi was down 1.2%.

Ambac (ABK Quote) detailed its plan to raise $1.5 billion, saying it will get nearly $1.16 billion of that by selling 171.1 million shares at $6.75 each. The underwriters received a 30-day option to purchase up to an additional 25.7 million shares.

Simultaneously, Ambac priced a $250 million public offering of 5 million equity units and also sold more than 14 million shares, raising $95 million, through a private placement with two financial institutions. Shares of Ambac had a quick last-minute reversal, however, surging 28%, after spending most of the day in negative territory. Post-close action saw the stock giving back 16%.

Additionally, in a move to dig into some of the problems that led to the past year's subprime-led catastrophe, Congress heard testimony from former Citi CEO Chuck Prince, Merrill Lynch's (MER Quote) ex-CEO Stanley O'Neal, and Countrywide Financial (CFC Quote) chief Angelo Mozilo, who answered questions on their own substantial compensation packages as part of a larger Congressional review on failings at the three firms.

Overseas, Asian markets were battered by the U.S. decline last time out, as Tokyo's Nikkei 225 plunged 3.3% to 12,783. The Hang Seng Index in Hong Kong tumbled 3.6% at 22,501. In Europe, London's FTSE 100 and Germany's Xetra Dax each fell 1.2%.

Among commodities, crude oil had another record-breaking day as it crossed the $106 mark for the first time. It finished off 32 cents to $105.15 a barrel, but was still up $3.31 for the week. Gold futures shed $2.90 at $974.20 an ounce.