Updated from 4:26 p.m. EDT
and Treasury-sponsored rescue plan for pummeled mortgage buyers
couldn't keep U.S. stocks advance Monday, and the major averages closed with moderate losses.
Dow Jones Industrial Average
fell 45 points at 11,055, and the
lost 11 points to 1228. The
dropped 26 points to 2213.
On Sunday, Treasury Secretary Henry Paulson said his
agency would extend additional credit
to Fannie and Freddie, as well as buy stock in the companies, if needed, to help the government-sponsored entities retain adequate capital levels.
Meanwhile, the Fed said it will play a more active role in setting capital requirements for the two mortgage backers and granted its New York branch the power to lend to the companies if necessary.
Last week, shares of Fannie and Freddie were repeatedly hammered on concerns about their solvency and speculation that the government would stage a bailout, destroying the value of their stocks.
A weekly auction of short-term bills by Freddie Mac was met with strong demand today. The company said it sold $2 billion in three-month bills with a yield of 2.309% and another $1 billion in six-month reference bills that yield 2.496%. Shares of Fannie ended down 5.1% at $9.73, while Freddie tumbled 8% to $7.11.
The Treasury and Fed's decision to step in on behalf of their behalf is good news, because things might have been worse if the government hadn't intervened, said Bill Stone, senior vice president and chief investment strategist at PNC Wealth Management.
"Some of these people that worry about a systematic failure of the financial system are kind of overstating the case," said Stone. Still, investors have reason to be worried. "The fact remains that even though the systematic risk might not be there, big picture anyway, I'm not sure that things have necessarily gotten any better for shareholders in financials."
Stone pointed out that a decision by the Treasury to buy additional shares of the mortgage firms would probably be dilutive to the stock, hurting shareholders. "They could survive, but shareholders could still come away with little to nothing."
In a less encouraging development for the financial space, the Office for Thrift Supervision took over
late Friday after a bank run diminished its capital. Shares of IndyMac have lost nearly all their value, ending today's session at 15 cents.
Also reflecting jitters about the financial sector,
shares plunged this morning and were briefly halted just before noon. The bank issued a statement to quell rumors that it was facing unusual depositor or creditor activity. The stock slumped 15% to $3.77. Shares of fellow financial firm
sank 35% at $3.23.
Also disquieting to investors were earnings from regional firm
. The company said second-quarter profits declined 25% year over year to $160.3 million, or $1.44 a share, shy of analysts' forecast of $1.50 a share. M&T dropped 16% to $58.82.
"There is a great deal of fear as far as how sound these banks are at this point," said Don Frerichs, senior vice president and director of mutual funds for Portfolio Management Consultants, the investment arm of Envestnet Asset Management. He said that the S&P may be fairly valued based on forward earnings, and to the degree that as foreclosure legislation puts a bottom into the housing market, investor sentiment could turn positive.
Outside the financial group, on Sunday
accepted a $70-a-share takeout bid by Belgian brewer InBev. The deal, worth $52 billion, represents an increase from InBev's earlier offer of $65 a share.
Elsewhere on the M&A front,
said over the weekend that it had rejected a proposal by
and billionaire Carl Icahn to restructure the Internet company and sell its search business to Microsoft.
also began courtship of
, offering $34 a share. Waste Management said its offer is better for Republic shareholders than a June 23 agreement by Republic to acquire
in a stock deal.
announced that it sold 1 million iPhones over the weekend, trouncing analyst sales expectations for the sought-after smartphone.
Looking at commodities, crude oil ended up 12 cents at $145.18 a barrel, and gold rose $13.10 to finish at $973.70.
Prices for crude were little changed in the wake of an announcement from President George Bush that he was lifting the executive order banning oil exploration on the outer continental shelf surrounding the U.S. Speaking at the White House, he said that Congress should act quickly to increase domestic oil production.
As for Treasuries, the 10-year note was adding 27/32 in price, yielding 3.86%, and the 30-year was up 1-16/32 to yield 4.45%. The dollar was recently gaining against the euro, yen and pound.
Outside the U.S., European markets were rising, while the Asian exchanges showed some weakness. The FTSE in London and the DAX in Frankfurt were both up, though the Nikkei in Japan and Hong Kong's Hang Seng declined.