Stocks' Early Gains Melting Away

A new housing recovery bill becomes law and July payroll data show a suprise increase. But oils stages a comeback on fresh inventory data.
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Updated from 12:47 p.m. EDT

Stocks in New York were pulling back from strong early gains gathered after the signing of a government housing relief bill and the release of encouraging employment data. The move comes as oil climbs higher on fresh inventory data.

The

Dow Jones Industrial Average

, up as much as 169 points early on, was lately sporting a 48-point gain at 11,446, and the

S&P 500

was up 5 points at 1268. The

Nasdaq

, however, dipped 15 points at 2305.

Wednesday morning, President Bush signed into law a housing bill that would help struggling homeowners and offer support for troubled mortgage companies

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

. Bush had previously threatened to veto the bill because of provisions he said would help lenders that contributed to the current housing crisis.

"The actual impact of

the housing bill is really diminished because everybody expected that," said Bruce Bittles, chief investment strategist at Baird. He said the market benefited early from momentum generated during Monday's large runup.

"I personally don't believe that this housing bill will offer that much relief," said Chip Hanlon, securities analyst at Delta Global Advisors. He said the housing market will go through a correction but that the correction has been priced in to the stock market.

Hanlon said he believes the market is reaching a moment of extreme pessimism that comes before a buying opportunity. "I think we're getting that baby out with the bathwater point. If it takes one more swoosh, so be it."

Citing ongoing fragility in the financial system, the

Federal Reserve

also said it would leave its discount window, as well as its term securities lending facility, open to investment banks until Jan. 30, 2009. The primary dealer credit facility was originally slated to close in September.

Earnings season, meanwhile, remains in full swing. After the close Tuesday, video-game maker

Electronic Arts'

(ERTS)

financial results

fell short of estimates

.

Similarly, life insurance provider

MetLife

(MET) - Get Report

reported earnings that fell year over year and failed to meet analysts' expectations.

Before the new day's trading got underway, cable operator

Comcast

(CMCSA) - Get Report

announced a 7.5% increase in profit from the year-ago quarter, although growth in its subscription base was slowing. Glass producer

Corning

(GLW) - Get Report

, meanwhile

reported growing profits but offered tepid guidance

for the third quarter.

Energy-patch denizen

Hess

(HES) - Get Report

reported rising profits stemming from elevated oil prices. It, along with the broader energy space, was rising as crude oil prices climbed.

Steel producer

ArcelorMittal

(MIT)

reported that second-quarter profit more than doubled as demand allowed it to pass rising raw materials costs on to clients.

Ratings agency

Moody's

(MCO) - Get Report

reported declining profit but beat expectations and affirmed its full-year outlook. Navigation-device maker

Garmin

(GRMN) - Get Report

, on the other hand,

delivered an earnings miss

.

Elsewhere, the

Securities and Exchange Commission

extended until Aug. 12 its ban on naked short-selling of Fannie Mae, Freddie Mac and brokerages.

Shifting over to commodities, crude oil was adding $4.06 at $126.25. Gasoline prices continued their decline, as the average reached $3.926 a gallon, down from $3.941 Tuesday and $4.086 a month ago. Gold futures were losing $12 at $914.40.

"Oil's pullback in recent days has provided the relief for this rally," said Hanlon of Delta Global Advisors. He said today's bounce is providing drag for equities. He said that oil is probably trying to find a range in the $120 area, and was skeptical that it could bounce back to the $140s.

Bittles of Baird said that the economy is having trouble gaining traction because of pressure on the consumer, rising commodity prices and unemployment. He said that before the economy can do well, oil prices have to come down.

In economic data, the Energy Information Administration said that gasoline inventories for the week ended July 25 fell by 3.5 million barrels last week, whereas analysts were looking for an increase in supply of 400,000 barrels. Oil inventories fell by 100,000 barrels to 295.2 million barrels, a smaller decline than the 1.3 million barrels expected by economists.

Meanwhile, Automatic Data Processing's July payroll report showed an increase of 9,000 jobs, above the consensus estimate for a loss of 60,000, and an improvement over a loss of 79,000 in June.

" I think it'll be too optimistic," said Bittles of the payroll report. "I have to believe the economy is losing jobs. I don't think that we're shedding jobs at a rapid pace, but I do think we're losing jobs."

Separately, the Mortgage Bankers Association showed mortgage application volume for the week ended July 25 declining 14.1% to its lowest level this year.

Treasury prices were bouncing back from early losses. The 10-year note was adding 2/32, yielding 4.03%, and the 30-year was shedding 2/32 to yield 4.62%. The dollar was slipping against the euro, the yen and the pound.

Most global exchanges, including London's FTSE, Frankfurt's DAX, Tokyo's Nikkei and Hong Kong's Hang Seng, were gaining ground.