Updated from 2:59 p.m. EDT

Financial stocks struggled to find footing early Monday as the subprime crisis continued to cast a long shadow, though the sector gained some upward momentum along with the major indices come afternoon.

Broker Bear Stearns ( BSC) was heavily traded , slumping earlier in the day and then rising, after President and co-Chief Operating Officer Warren Spector was pushed out over the weekend in light of the company's recent subprime-mortgage-related hedge fund troubles . Shares closed up $5.46, or 5%, to $113.81.

The lately ravaged shares of American Home Mortgage Investment ( AHM) took another slide -- down 36.7% to 44 cents -- after the mortgage lender officially announced it has declared bankruptcy.

J.P. Morgan cut Luminent Mortgage Capital ( LUM) to underweight, saying it has too much exposure to the residential-mortgage market, after which shares fell 30.8% to $4.38 before trading on the stock was halted. Impac Mortgage ( IMH) lost 15.1% earlier in the day on a Deutsche Securities downgrade to hold from buy but closed up 2.4% to $1.70.

NovaStar Financial ( NFI) took a nosedive below the $5 mark earlier today after a Friedman Billings analyst predicted that the subprime lender will eventually shut down, citing its Friday announcement that it will halt funding of some mortgage loans. But NovaStar later said it will resume funding those loans Tuesday. After that announcement, shares rocketed back upward and broke into the green. They closed up 38 cents, or 5.9%, at $6.78.

In more reversals, mortgage lender IndyMac Bancorp ( IMB) and Countrywide Financial ( CFC), which has a big mortgage-lending unit, were both down sharply earlier in the day before reversing as they clung on to the market's late surge. IndyMac closed up 1.9%, and Countrywide closed up 7%.

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