Stocks Hold to Upward Course

The major averages in New York overcome a sluggish morning and turn higher in the afternoon. Freddie Mac and Fannie Mae are among the morning's big losers to reverse course.
By Sarina Penn ,

Updated from 2:18 p.m. EDT

Stocks in New York were drifting higher Tuesday afternoon as traders looked past a fresh batch of bad news from the financial sector and another record day for oil prices.

The

Dow Jones Industrial Average

was down more than 100 points this morning, but the index hoisted itself up around midday, and was recently adding 13 points at 12,983. The

S&P 500

climbed 6 points to 1413, and the

Nasdaq Composite

rose 13 points to 2477.

"Now that we've got the bulk of earnings out of the way, and a lot of the uncertainty out of the way, people are more comfortable with this trading environment," said James Park, managing director with Rodman & Renshaw. "There's a lot more confidence in the market, and we're seeing some more cautious buying going on."

Paul Nolte, director of investments with Hinsdale Associates, said the economic data from the past 10 days suggest the economy has probably flattened out and that the potential exists for a short and shallow recession.

"I think investors are also anticipating the spending rebates will provide a shot in the arm to the economy in the second and third quarters," he added. "So I think they're ignoring, at this point, the higher energy and commodity prices, at least for now."

Crude oil soared to yet another all-time high of $122.73 a barrel after Goldman Sachs said prices could balloon to between $150 and $200 in the coming six months to two years as supply fails to catch up with demand.

"When the Goldman Sachs report came out, that just gave more psychological support to a market that was already wildly bullish," said Phil Flynn, vice president and senior market analyst with Alaron Trading. "It's almost going beyond reason here."

Flynn remarked that supply concerns of various sorts, as well as the weaker U.S. dollar, are helping feed into the upward drive today. "But it's really a situation where the momentum is so bullish that it's overshadowing every other issue," he said. "It's become sort of a money game right now, and it just isn't going to stop in the near term."

He added: "This could be a blow-up off the top, a final gasp of the market going higher, or it could be that we're never going to come down on oil again."

Crude later stepped back to a $1.87 gain at $121.84. Gold futures, meanwhile, added $3.60 to $877.70. The U.S. dollar lost 0.3% against the euro to $1.5538 and fell 0.2% against the yen at 104.56.

As for corporate news,

Fannie Mae

(FNM)

was a morning drag as the mortgage buyer reported a loss of $2.51 billion, or $2.57 a share, in the latest quarter, after payment of preferred dividends. The firm also said it will cut its dividend and raise $6 billion through share offerings. Shares tumbled out of the gate but lately recovered to add 5.6%.

Fellow government-sponsored mortgage investor

Freddie Mac

(FRE)

tacked on 4%, also in reversal from early losses.

Park said when the news in the space is negative, "you see these stocks take a hit, but longer-term investors are coming in and scooping things up." He added that some of the upward action is probably due to traders covering their short positions in the stocks.

In more evidence for the continued slide in housing,

D.R. Horton

(DHI) - Get Report

swung to a

steep first-quarter loss

that was far worse than analysts had anticipated. The stock was off earlier, but lately forged 3.5% higher.

Merrill Lynch

(MER)

shares remained lackluster recently, however, after news that the government has asked for information about auction-rate securities and the failure of some recent auctions. Shares were lately dipping 1%.

Elsewhere among financials,

UBS

(UBS) - Get Report

said it

took a loss of $10.97 billion

in its most recent quarter after a $19 billion writedown. UBS also said it would shrink its workforce by 5,500 workers by the middle of next year, including cutting up to 2,600 employees in the investment banking division, and sell $15 billion in troubled mortgage assets to

BlackRock

(BLK) - Get Report

. UBS shares were shedding 1.3%.

Also,

Legg Mason

(LM) - Get Report

slid 7.1% after the asset manager reported a fiscal fourth-quarter shortfall of $255.5 million -- its first-ever quarterly loss -- and set plans to offer 20 million equity units in order to raise $1 billion. Underwriters will have the option to buy another $150 million worth.

On the flip side,

NYSE Euronext's

(NYX)

first-quarter pro forma income soared by 52.5% at $241 million, or 91 cents a share, thanks to

surging trading volume

. The exchange operator also beat on both top and bottom lines. Shares ramped up 6.3%.

Last time out, equity measures closed lower under pressure from crude oil, which got past the $120 mark for the first time ever, as well as the evident disintegration of a proposed merger between

Microsoft

(MSFT) - Get Report

and

Yahoo!

(YHOO)

.

Back on the corporate front, Dow component

Merck

(MRK) - Get Report

announced plans to lay off 1,200 workers, a decision that comes a few days after the Food and Drug Administration rejected the company's new cholesterol drug. Shares were easing fractionally at $38.84.

Staying in the health-care sector, Israeli drugmaker

Teva

(TEVA) - Get Report

topped the first-quarter analyst consensus for both sales and adjusted income, but shares were still off 1.6%.

Barrick Gold

(ABX)

also came in ahead, as did

Anadarko Petroleum

(APC) - Get Report

, which crushed the average target by 22 cents a share after stripping out one-time items. Shares were up 1.8% and 10.1%, respectively.

Treasury prices were little changed lately. The 10-year note was up 1/32 in price to yield 3.86%, and the 30-year bond fell 2/32 in price, yielding 4.61%.

Overseas markets were mixed. Hong Kong's Hang Seng ticked up 0.3% overnight. In Europe, London's FTSE 100 was about flat at 6215. Germany's Xetra Dax and the Paris Cac were losing 0.5% and 0.4%, respectively.

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