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Stocks End Little Changed

Fannie Mae and Freddie Mac close mixed. Delta and Northwest both fall on worries about their merger.

Updated from 4:09 p.m. EST

Stocks in New York bounced between positive and negative territory Wednesday but didn't move a great deal in either direction, and by the end of the session the major averages stood near where they started.

When the closing bell rang, the

Dow Jones Industrial Average

had gained 9.36 points, or 0.1%, to 12,694.28, and the

S&P 500

was down 1.27 points, or 0.1%, at 1380.02. The

Nasdaq

tacked on 8.79 points, or 0.4%, at 2353.78.

The market opened to the downside before going higher at midmorning on word that U.S. regulators will strike the portfolio-size limits on government-sponsored mortgage buyers

Fannie Mae

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and

Freddie Mac

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.

The Office of Federal Housing Enterprise Oversight said restrictions on the size of the mortgage portfolios held by Fannie and Freddie will be removed March 1. The caps were created following the discovery of accounting errors at the firms, and their removal will give both more power to purchase mortgages.

The announcement initially propelled Fannie and Freddie some 17% higher, though shares of the companies pulled back to gain 1.1% and lose 0.5%, respectively. Earlier, Fannie fell after posting

a fourth-quarter loss of $3.6 billion, or $3.80 a share, owing to the collapse in the housing market.

Similarly, stocks overall got a boost, but by the afternoon the momentum had faded considerably.

Bill Stone, chief investment strategist with PNC Wealth Management, said investors are likely wary of leaving their profits on the table after a rare three-day winning streak for the major indices, since "seemingly around every corner is more bad economic news or more credit problems."

He added that it's uncertain exactly how much good OFHEO's move will do, in light of Fannie and Freddie's less-than-stellar cash levels. "It's not a negative," he emphasized. "Just a question of how positive."

Also taking center stage was Ben Bernanke's testimony before legislators on Capitol Hill. Though the

Federal Reserve

chairman did note that consumer price inflation is being observed, he spent the bulk of his remarks discussing the difficulties facing the economy, leaving open the possibility of more rate cuts or other moves aimed at staving off a recession.

Addressing the Committee on Financial Services of the House of Representatives,

Bernanke said the economic situation has become "distinctly less favorable" since last summer, as the stress in the financial markets has persisted and credit conditions have tightened.

The primary culprit, he pointed out, has been the decline in the housing market, which "is expected to continue to weigh on economic activity in coming quarters."

Referring to the Fed's decision earlier this month to lower its gross domestic product growth forecast and increase its unemployment projection, Bernanke said "risks to this outlook remain to the downside." In particular, he said, housing or the labor market could worsen more than expected and credit might become harder to access.

Policymakers, he concluded "will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."

That implies more potential easings of the fed funds target rate -- currently at 3% after having been slashed 225 basis points since September -- and investors have reacted positively so far.

But Matt King, chief investment officer for Bell Investment Advisors, hopes the cuts are temporary. "My main concern lies with inflation, and it doesn't seem the Fed is paying enough attention to that," he said. "We realize

they're in a tight space here, but long-term we don't want rates to stay too low for too long. That exacerbates inflation and slows economic growth."

Stone, meanwhile, isn't worried about inflation, saying that this will only become a concern "when wages start chasing the inflated prices." He pointed out that labor costs were up only 1% year over year. And as long as people continue to feel the burn of product inflation, he said, that will help keep a lid on prices.

"That's the economic viewpoint," he admitted. "People are probably wishing their wages were going up at the same rate."

On Tuesday the producer price index, a measure of inflation at the wholesale level, came in well above what economists anticipated, rattling Wall Street. A big buyback and improved profit forecast from

IBM

(IBM) - Get International Business Machines (IBM) Report

, however, changed the course of the major averages and sent stocks to a higher close.

Meanwhile, oil prices, a day after their highest-ever close, shed $1.24 to settle at $99.64 a barrel after hitting the $102 mark earlier.

Bernanke, in his congressional question-and-answer session, said it is "relatively unlikely" that oil will continue surging as high as it has over the past year.

He conceded, though, that he doesn't know precisely how crude will behave, and that if this price trend continues unabated "it's going to create a very difficult problem for our economy," spurring more inflation, as well as more weakness in spending, because it acts like a "tax" on Americans.

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Stone agreed with Bernanke's prediction on crude prices and even tentatively predicted they could retreat within the next year.

The dollar was a story in its own right, breaking the $1.50 mark against the euro for the first time and proceeding to drop even further at $1.5143. The yen rose to 106.38 from 107.24, up 0.8%.

Gold, meanwhile, added $12.10 to $961 an ounce after hitting a new intraday record of $967.70.

Headliners from the corporate side included

Microsoft

(MSFT) - Get Microsoft Corporation (MSFT) Report

, who was

fined $1.35 billion by European Union regulators for alleged antitrust violations. Shares of Microsoft ticked down 12 cents at $28.26.

Also out with news was

Nortel

(NT)

, which said its fourth-quarter loss swelled to $844 million, or $1.70 a share, from $80 million and 19 cents a share last year, following a $1 billion charge.

The networker also set plans

to cut more than 2,000 jobs. Revenue, the company said, dropped nearly 4% to $3.2 billion. Shares tanked 13.3%.

Design-software firm

Autodesk

(ADSK) - Get Autodesk, Inc. Report

was downgraded by at least two analysts after posting an essentially flat fourth-quarter profit, while adjusted income fell short. Shares finished down 15.6%.

Elsewhere in the tech space,

The Wall Street Journal

reported that

Qwest Communications

(Q)

is in talks to revamp the way it sells bundles of services, in part by offering

Verizon's

(VZ) - Get Verizon Communications Inc. Report

wireless services.

Luxury homebuilder

Toll Brothers

(TOL) - Get Toll Brothers, Inc. Report

said that huge writedowns on land and other assets forced it into a

fourth-quarter loss, reversing a year-ago profit. Shares began lower but recovered to add 3.1% at $23.83.

Notable decliners were

Delta Air Lines

(DAL) - Get Delta Air Lines, Inc. Report

and

Northwest

(NWA)

, a day after news broke that their potential merger

could be in danger of falling apart. Both stocks lost more than 5%.

On the economic front, the Commerce Department reported that new orders for durable goods slid a steeper-than-expected 5.3% in January. Excluding transportation, orders dropped 1.6%. Separately, the Census Bureau said new-home-sales last month fell 2.8% to a 588,000 annual pace, a larger fall-off than predicted.

Treasury prices were little changed. The 10-year note was flat to yield 3.86%. The 30-year bond gained 3/32 in price, yielding 4.65%.

Overnight in Asia, Hong Kong's Hang Seng surged 3.2%, and Japan's Nikkei 225 climbed 1.5%. Europe's major markets, meanwhile, were buoyed late by the U.S. market's upturn. London's FTSE 100 dipped 0.2%, recovering from deeper losses, and Germany's Xetra Dax rose 0.2%.