Stocks Decline From Paper Tiger Start

Updated from 10:18 a.m. EDT

Stocks in New York were undulating under the baseline Tuesday after the Federal Reserve said it would buy short-term debt from U.S. companies to provide relief from the credit crisis.

The Fed announced creation of a new lending facility to buy short-term commercial paper from businesses and said it expects the new lending program to remove the stoppage in the credit markets.

The Dow Jones Industrial Average was recently down 16 points to 9940, and the S&P 500 was losing 2.6 points to 1054. The Nasdaq lost 10 points to 1853.

The Fed's decision to begin buying commercial paper is "a radical change in the nature of the Fed," said Dirk Van Dijk, director of research at Zacks Equity Research. He said that the Fed is now essentially making unsecured loans to corporations. "The commercial paper market was the most constipated of all the financial markets," said Van Dijk. Getting commercial paper moving makes some sense, he said, although the actual impact of the Fed's move remains to be seen.

"Under all this, the real economy is headed south in a very big way. That is in itself going to put a lot more pressure on these banks," said Van Dijk. He said he foresees 200,000 to 250,000 jobs lost in October, a worse loss than the discouraging 159,000 decline in September payrolls. "It's going to be quite bad."

Dysfunctional credit markets were also prompting speculation that the Fed and other central banks would coordinate rate cuts to jump-start lending.