Updated from 4:15 p.m. EDT

Stocks in the U.S. endured another seesaw trading session Tuesday as questions and concerns about the credit markets and the role of the Federal Reserve continued to swirl.

The Dow Jones Industrial Average lost 30.49 points, or 0.2%, to 13,090.86, and the S&P 500 added 1.57 points, or 0.1%, to 1447.12. The Nasdaq was better by 12.71 points, or 0.5%, at 2521.30.

New York's major averages rose to their short-lived session highs at midday after Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said Fed Chairman Ben Bernanke will take advantage of all the means he has to stabilize the markets.

He made his comments following a meeting with Bernanke and Treasury Secretary Henry Paulson. Some traders took that to mean a reduction in the fed funds target rate from the 5.25% level, where it has been for more than a year, could be on the horizon. Futures contracts indicate traders are uniformly expecting a cut in the near future.

Those hopes were stoked last week when the Fed unexpectedly lowered the discount rate, the rate it charges on loans to banks, by 50 basis points. The fed funds rate is the interest banks charge each other on overnight loans. Dodd said he didn't ask Bernanke to cut the fed funds target.

However, the move up was quickly halted by Richmond Fed President Jeffrey Lacker. Speaking in Charlotte, N.C., Lacker, who has a reputation for hawkish views, said the recent volatility wasn't necessarily a reason for a rate cut and that there is still room to be worried about inflation.

"Even without a change in the interest rate target, the Fed has tools at its disposal that can help the market make necessary adjustments in times like these," he said, in prepared remarks.

Lacker currently isn't a member of the Federal Open Market Committee, the policymaking body that votes on the fed funds rate, but because he is a Fed official, his words still carry considerable weight.

Earlier, in a televised interview, Paulson tried to sound a calming tone, saying that while there are liquidity concerns and stresses in the capital markets, the domestic and global economies remain strong.

"These things take a while to play out," he said, and eventually "liquidity will return to normal."

Meanwhile, signs of the credit crisis flared up again. Following the prior close, Capital One Financial ( COF) said it will shut down its wholesale mortgage business, eliminating 1,900 jobs in the process.

Shares of Capital One rose 2.6% in the wake of the announcement as investors hoped the move would mitigate the chance the company will be hurt by the troubles in the mortgage world.

Elsewhere, Accredited Home Lenders ( LEND) signed an agreement to swap about $1 billion of loans under a 90-day purchase agreement. The transaction will reduce the company's exposure to margin calls on the loans, Accredited said. Its shares rose 1.7%.

The homebuilders weren't as fortunate. Banc of America downgraded Toll Brothers ( TOL) to sell from neutral and cut Hovnanian ( HOV) and Standard Pacific ( SPF) to neutral from buy, saying it believes cancellations have been increasing.

All three stocks traded lower.

Separately, RealtyTrac said the number of foreclosure filings in July soared 93% from the same month a year ago to 179,599, illustrating the difficulties facing the housing arena.

Treasury bonds were on the rise. The 30-year gained 9/32 in price, lowering the yield to 4.95%, and the 10-year note added 9/32 in price, yielding 4.59%. Yields on three-month bills rebounded to 3.62% after plunging during the last session.

As for the foreign-exchange market, the dollar was little changed against the yen and the euro.

Overseas, the People's Bank of China raised interest rates for the fourth time this year as the central bank aimed to control inflation. In Europe, the Bank of England said at least one lender used its lending facility, similar to the Fed's discount window, for the first time in over a month.

Hong Kong's Hang Seng Index rose 0.6%, and Japan's Nikkei 225 climbed 1.1% overnight. London's FTSE was up 0.1%, and Germany's Xetra Dax tacked on 0.2%.

Away from the financial sector, earnings were out from several retailers. Target ( TGT) was in line with expectations and reaffirmed its outlook, and BJ's Wholesale Club ( BJ) exceeded estimates.

Saks ( SKS) beat by a penny, and Staples ( SPLS) was in line. American Eagle ( AEO) topped the consensus but issued downside guidance, while Dick's Sporting Goods ( DKS) surpassed analysts' targets and guided higher.

Crude oil was lower as Hurricane Dean made landfall in Mexico, sparing major oil operations in the Gulf of Mexico. The September benchmark crude contract shed $1.65 to $69.47 a barrel. Natural gas was soft again, losing 22 cents to $5.82 per million British thermal units.

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