Stocks on Wall Street Fight to Shake Negativity

Updated from 1:26 p.m. EST

Succumbing to the volatility that has lately plagued the market, stocks on Wall Street were losing ground Tuesday, even as the Federal Reserve announced $800 billion in new federal programs to help fix frozen credit markets.

The Dow Jones Industrial Average, up some 164 points earlier, was lately up 66 points at 8509. The S&P 500 was gaining 8 points to 859, but the Nasdaq was losing 9 points to 1462.

The major averages' opening rally followed the Fed's announcement that it would use $600 billion to buy direct obligations and mortgage-backed securities tied to the Federal Home Loan Banks and Fannie Mae (FNM Quote), Freddie Mac (FRE Quote) and Ginnie Mae.

Brian Bethune, director of financial economics at Global Insight Economics, said that the Fed is trying to reduce spreads on the value of Fannie and Freddie securities relative to Treasuries. Bethune said that reducing those spreads, which are at unusually high levels, would in turn translate to lower mortgage rates.

"The growth of mortgage credit has literally collapsed," said Bethune. Mortgage lenders have been hesitant to originate loans because the prices of homes continue to fall. In addition, he said, Fannie and Freddie themselves reduced the amount of credit they were generating as they ran into capital constraints earlier this year. "It really is a very difficult situation," he said.

The Fed also announced the creation of a $200 billion facility for holders of triple-A rated asset-backed securities tied to loans related to education, autos, credit cards and small businesses.

Speaking at a press conference about the Fed programs and the $700 billion Troubled Asset Relief Program, Treasury Secretary Henry Paulson said that stabilization of the mortgage-backed securities market and stimulation of consumer-lending markets are crucial. He said that Americans need to continue to be able to finance everyday purchases and stressed that no single piece of legislation was likely to resolve the credit crisis.