Updated from 11:10 a.m. EST

Succumbing to the volatility that has lately plagued the market, stocks on Wall Street were dropping from earlier highs Tuesday, after the

Federal Reserve

announced a $600 billion program to aid government-backed mortgage firms and a $200 billion program to aid consumers hurt by the credit crisis.

The

Dow Jones Industrial Average

, up some 164 points earlier, was lately down 31 points at 8412. The

S&P 500

was down 2 points to 849, and the

Nasdaq

was losing 20 points to 1451.

The major averages' earlier opening rally followed the Fed's announcement that it would buy direct obligations and

mortgage-backed securities

tied to the Federal Home Loan Banks and

Fannie Mae

(FNM)

,

Freddie Mac

(FRE)

and

Ginnie Mae

.

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.

"Volatility is the norm here and not the exception," said Art Hogan, chief market analyst at Jefferies, of the market's reaction to the new government programs. He said the announcement of the new TARP initiatives were already telegraphed to the market and the previous two-day rally had been in part a reaction to additional intervention. "We may have celebrated this news already," he said.

Bill Stone, chief investment strategist for PNC Wealth Management, said that intervention into the asset-backed commercial paper markets is a continuation of recent efforts to unfreeze credit markets. By facilitating the securitization of asset-backed bonds, the government is encouraging additional lending for consumer purchases, he said. When lending is too tight, said Stone, "Even if the deals are good, it doesn't make any difference. Not many of us can pay in cash."

Stone said that the Fed's intervention is bullish for the markets, as it helps stocks price in a time frame for the length of a recession. "The longer the credit crunch goes on, the longer we have to assume the recession goes on," he said.

Hogan of Jefferies said that the government has made a good public-relations move by shifting its focus to the needs of the consumer. Intervention in the mortgage-backed securities market, credit cards, and student loans are all directed at the Main Street as opposed to Wall Street, he said.

As the new day's trading got underway, several financial firms appeared to be getting government help as well.

Goldman Sachs

(GS) - Get Report

garnered strong interest in a government-backed issuance of $2 billion to $3 billion in bonds, according to a report by

The Wall Street Journal

. The sale is expected to conclude Tuesday, and Citi and

General Electric

(GE) - Get Report

are expected to stage similar government-assisted bond sales.

Meanwhile, staggering insurance firm

American International Group

(AIG) - Get Report

announced voluntary restrictions on executive compensation and said that CEO Edward Liddy would receive a base salary $1 a year for 2008 and 2009. AIG has received hundreds of billions of dollars in government investments and aid this year.

As financial firms continued to weave their way through the credit crisis, the

Federal Deposit Insurance Corp.

announced that its count of troubled banks climbed from 117 in the second quarter to 171 in the third quarter. The agency also said that the total assets controlled by problem banks increased from $78.3 billion to $115.6 billion in the same period.

FDIC head Sheila Bair said in a press conference that the increase in the number of problem banks reflects ongoing troubles in the U.S. economy and the seizure in the credit markets.

"I don't think there's any great surprises," said Hogan of Jefferies. "Unfortunately we know that there are a lot of banks that have issues, and a lot of them will be folded into other banks by the end of the year."

In earnings news, computer systems maker and Dow component

Hewlett-Packard

(HPQ) - Get Report

delivered earnings that beat estimates on the top line but saw profit decline slightly year over year.

In the merger space, mining concern

BHP Billiton

(BHP) - Get Report

dropped a hostile takeover bid for

Rio Tinto

(RTP)

on a sharp decline in commodity prices and tough credit conditions.

The day's economic data was less than rosy. The Bureau of Economic Analysis revised its read of the third-quarter decline in GDP to 0.5% from 0.3%.

Separately, the Conference Board's November

consumer confidence index

gave a reading of 44.9, up from 38 in October and ahead of economists' forecasts.

The Standard & Poor's Case Shiller home price index, meanwhile, showed a third-quarter decline of 16.6% year over year, the worst decline on record.

In Europe, the

Organization for Economic Cooperation and Development

said that the developed world may face the worst recession it has seen since the early 1980s.

Moving on to commodities, crude oil was losing $3.16 to $51.34 a barrel. Gold was up 60 cents to $821 an ounce.

Longer-dated U.S. Treasury securities were rising in price. The 10-year was up 1-11/32, yielding 3.16%. The 30-year was gaining 1-28/32 to yield 3.68%. The dollar was falling vs. its major foreign competitors.

Overseas, European exchanges were mixed, as the FTSE in London edged lower, while the Dax in Frankfurt was eking out gains. Asian markets, including Japan's Nikkei and Hong Kong's Hang Seng, finished on the upside.