Closing Bell Halts Late Rally

Stocks finish lower, but end-of-day buying limits the damage.
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Updated from 4:14 p.m. EDT

Stocks closed to the downside Wednesday, but a late rush of buying interest allowed the market to finish well above its session lows.

After falling by as many as 148 points, the

Dow Jones Industrial Average

pared its losses and ended off 53.33 points, or 0.38%, to 13,918.22. The

S&P 500

declined 3.20 points, or 0.21%, to 1546.17, and the

Nasdaq Composite

lost 12.80 points, or 0.47%, at 2699.49.

"A 100-point pullback on the Dow would've been nothing after the strong rally we've had," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "If investors were willing to walk away with that loss, they must feel positive the market came back some before the close. This tells me that liquidity is still out there and people are still seeing value on the dips."

About 3.63 billion shares changed hands on the

New York Stock Exchange

, as decliners edged advancers by a 2-to-1 margin. Volume on the Nasdaq reached 2.26 billion shares, with losers outpacing advancers 3 to 2.

Throughout the day, investors sorted through a crush of earnings news, much of it from big tech names and from components of the Dow, plus a variety of economic data and testimony on Capitol Hill from

Federal Reserve

Chairman Ben Bernanke.

After the previous close,

Intel

(INTC) - Get Report

said its second-quarter profit jumped 44% and surpassed Wall Street's targets, but gross margins were weaker than had been anticipated.

Yahoo!

(YHOO)

also let down its fans, reducing its third-quarter and full-year forecast.

Both stocks gave back nearly 5%.

Those two reports came after a session in which the Dow got past the 14,000 mark for the first time in its history. However, by the end of trading the gains had been trimmed and the industrials finished up 20.57 points, or 0.15%, at 13,971.55. Still, that was its fourth straight record close.

Among those reporting earnings ahead of the open,

Pfizer

(PFE) - Get Report

missed analysts' estimates but reaffirmed its guidance for 2007 and 2008. The stock slid 83 cents, or 3.2%, to close at $25.13.

Fellow Dow components

JPMorgan Chase

(JPM) - Get Report

,

United Technologies

and

Altria

(MO) - Get Report

were better than analysts were expecting.

"There are problems out there as we've been going to new highs, including energy prices and housing worries. Earnings were powering us, and people were happy until we got the Intel and Yahoo! reports. It's a bump in the road for the time being," said Paul Mendelsohn, chief investment strategist with Windham Financial.

Also weighing on sentiment was news that

Bear Stearns

(BSC)

has told investors that investments in two subprime-related funds are nearly worthless. Shares of Bear Stearns dipped 57 cents, or 0.4%, to $139.34.

Fed Chairman Bernanke discussed the detrimental effects of a subprime slump when he appeared in front of the House financial services committee in the first of two days of congressional testimony.

Although Bernanke acknowledged that conditions in the subprime sector have deteriorated significantly, he pointed out that "credit spreads remain near the low end of their historical ranges, and financing activity in the bond and business loan markets has remained fairly brisk."

He also reiterated his belief that inflation remains the biggest risk to the U.S. economy, and that the upside risk keeps the Fed's core personal consumption expenditure forecast for the fourth quarter at 2% to 2.25%.

"In short, Mr. Bernanke and his colleagues seem determined not to offer even a hint that they might be considering any change in policy in the near future," said Ian Shepherdson, chief economist with High Frequency. "Only if their projections prove substantially incorrect, and growth and inflation a lower than they expect, and the labor market loosens, will they ease."

Energy prices remained another sticking point for investors, as crude continued to hover near $75 a barrel following the Energy Department's weekly inventory report.

The data showed an unexpected draw of 2.3 million barrels in gasoline inventories last week. Distillate stocks eased by 200,000 barrels, while crude inventories fell by 500,000 barrels.

The front-month August contract was higher by $1.03 to end at $75.05 a barrel, and gasoline rose 9 cents to $2.19 a gallon.

Little relief was found on the economic docket. The Labor Department's consumer price index climbed 0.2% for June, slightly ahead of expectations. However, the core index, which excludes food and energy prices, matched estimates with a 0.2% rise.

The closely monitored core inflation figure is now up 2.2% over the past 12 months, unchanged from May.

The data follow Tuesday's producer price index, which fell a greater-than-expected 0.2% in June. The core PPI rose 0.3%, slightly above estimates. The PPI report measures inflation at the wholesale level.

The CPI is considered the more important of the two when it comes to influencing Fed decisions on interest rates, but both are factored into the central bank's planning.

At the same time, the Census Bureau said U.S. housing starts rose a greater-than-expected 2.3% in May to 1.47 million annualized units. On average, economists expected new construction to total 1.45 million units.

The report did have some soft points, as building permits dropped 7.5% to 1.40 million last month, below the expected 1.49 million annual pace.

Following the data, Treasuries gained ground. The 10-year note rose 10/32 in price, yielding 5.01%, and the 30-year bond was higher by 19/32, yielding 5.10%.

Meanwhile, more deals were in the works, including a potential play for one of the nation's biggest retailers.

According to a report, Kohlberg Kravis Roberts is working with

Goldman Sachs

(GS) - Get Report

on a way to take

Macy's

(M) - Get Report

private in a $24 billion transaction. The department store operator has been the subject of buyout rumors for several weeks. Macy's jumped $3.06, or 7.6%, to finish at $43.09.

Later in the day, a source told

TheStreet.com

that Goldman isn't involved.

Elsewhere,

Dow Jones

(DJ)

said its board has given its blessing to a $5 billion takeover by

News Corp.

(NWS) - Get Report

, but the Bancroft family will have to sign off before the deal can get done. Dow Jones eased 80 cents, or 1.4%, to $55.65. News Corp. added a penny to $24.26.

Another proposal has

Imperial Tobacco

(ITY)

making an offer worth nearly $18 billion for Spain-based cigarette maker Altadis.

Overseas, stocks were mostly lower. Tokyo's Nikkei declined 1.1%, and Hong Kong's Hang Seng fell 0.9%. London's FTSE was off 1.4%, and Frankfurt's DAX gave back 1.8%.

Following the close, more tech giants were posting quarterly results, including

eBay

(EBAY) - Get Report

,

IBM

(IBM) - Get Report

and

Juniper Networks

(JNPR) - Get Report

.