Stocks Dip Into Negative Territory

The three major indices are trading around the flatline as traders absorb homes sales and consumer data.
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Updated from 11:39 a.m. EDT

Stocks in the U.S. were having an uneven session Tuesday as traders received better-than-expected consumer confidence data and an encouraging read on July new-home sales, but still found themselves contending with uncertainty about the financial sector.

The

Dow Jones Industrial Average

was down 24 points at 11,362, and the

S&P 500

was off half a point at 1266. The

Nasdaq

was losing 10 points at 2356.

During the first trading day of the week, volume was thin and buying ambition was low as concerns about the financial sector translated into broad selling and losses of about 2% for each of the three major indices.

Investors were wringing their hands over a potential takeout of

Lehman Brothers

(LEH)

, whose exposure to bad credit has left its stock on the ropes and management facing questions about its strategy.

Fitch's worries about insurance giant

AIG

(AIG) - Get Report

and investment losses at

JPMorgan Chase

(JPM) - Get Report

also hurt sentiment.

With a new day, angst about U.S. financial institutions was persisting.

The Wall Street Journal

reported that federal regulators have sent "memorandums of understanding," documents that can force banks to raise capital or reduce exposure to high-risk assets, to as many as six banks, including

National City

(NCC)

,

Imperial Capital

(IMP)

,

First State

(FSNM)

and

BankUnited Financial

(BKUNA)

.

The memorandums represent efforts by the

Federal Reserve

and the Office of the Comptroller of the Currency to head off failures, the report said. Nine banks have failed this year, and five of those have gone under since mid-July. The most recent casualty occurred last week, when a Kansas bank was shut down.

In the technology space, PC maker

Hewlett-Packard

(HPQ) - Get Report

has completed its purchase of

Electronic Data Systems

(EDS)

. H-P had announced the $13.3 billion deal in May.

Ahead of its merger with

Northwest Airlines

(NWA)

,

Delta

(DAL) - Get Report

said it took out a $1 billion loan to increase its cash position as it finalizes the joining of the two companies.

In earnings news, mining company

Rio Tinto

(RTP)

announced earnings for the first half of 2008 that increased from a year ago and beat analyst estimates.

Specialty retailers

Chico's FAS

(CHS) - Get Report

and

American Eagle

(AEO) - Get Report

reported quarterly results that declined year over year but came in ahead of expectations. Meanwhile, discount-store operator

Big Lots

(BIG) - Get Report

posted rising profits and beat the Street's forecasts.

Smithfield Foods

(SFD)

appeared headed for a tougher day after it swung to a first-quarter loss on rising commodity costs.

As for economic data, the Conference Board's measure of August consumer confidence came in at 56.9, showing an improvement in sentiment from July's reading of 51.9 and a better look than economists had been expecting.

Because consumer confidence is highly correlated with gasoline prices, the decline in gasoline prices in recent weeks has contributed to the bolstered consumer, wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics, in an email. He said the August bump in confidence pales in comparison with the substantial decline of the last year, however.

The June Standard & Poor's/Case-Shiller home-price index fell 15.4% from a year ago. The index declined 0.5% from May to June.

Meanwhile, the Census Bureau said that new-home sales in July rose to an annual rate of 515,000 units, an increase of 2.4% over June's revised figure of 503,000. The initial June reading had homes selling at an annual pace of 530,000 units. "We still can't say with any confidence that sales have hit bottom, though the rate of decline has certainly slowed," wrote Shepherdson. He said that a decline in inventories is an encouraging sign.

Traders also will be paying attention to the Fed's minutes from its Aug. 5 policy meeting. At that gathering, the central bank elected to keep its target interest rate at 2%, which is where it's been since April.

In commodities, the price of crude oil was rising 58 cents to $115.69 a barrel. Gold was climbing $1.10 to $826.80 an ounce.

In the fixed-income area, Treasuries were edging downward. The 10-year note down 6/32 and yielding 3.8%. The 30-year was giving back 6/32 to yield 4.4%. The dollar was gaining against the euro, yen and pound.

Overseas markets were mixed, as the FTSE in London, the Nikkei in Japan and the Hang Seng in Hong Kong all trading lower. The Dax in Frankfurt was posting gains.