Stocks Edge Up to Baseline

Updated from 12:05 p.m. EDT

U.S. stocks shook off steep losses to trade near the baseline Thursday, as traders took in a flood of corporate earnings statements, saw evidence of additional turmoil in the financial sector and stomached a fresh serving of economic data.

The Dow Jones Industrial Average, which had slipped as much as 376 points, lately was up 14 points at 8592. The S&P 500 was edging down 2 points at 905, and the Nasdaq was up 15 points at 1643.

Art Hogan, chief market strategist at Jefferies, said that he believes the market bottomed at its intraday low on Friday, and the markets will not even return to test that. "We're still convinced that the punishment is not fitting the crime and we're overdoing it here." He said the market is seeing indiscriminate selling as firms continue to try to raise cash.

Ahead of Wednesday's trading, Swiss bank UBS ( UBS) received a $5.3 billion cash injection from the Swiss government in exchange for a 9% equity position in the company. UBS and the Swiss National Bank also reached an agreement for UBS to transfer up to $60 billion of currently illiquid securities and other assets from its balance sheet to a separate fund.

There was trouble back in the U.S. as well. Bloomberg reported that Citadel Investment Group's largest hedge fund lost as much as 30% this year on bad bets in convertible bonds, stocks and corporate debt. And the need for hedge funds like Citadel to liquidate is a likely contributor to the market's recent volatility.

Corporate earnings were once again in focus. Following the close Wednesday, online auctioneer eBay ( EBAY) swung to a third-quarter profit but said its core business may face difficulties ahead.

Quarterly results from financial firms continued to reflect the impact of the credit crunch. Citigroup ( C) reported a third-quarter loss that was narrower than the Street had forecast.

Merrill Lynch ( MER), meanwhile, posted a widened loss that included a $2.5 billion payment related to a stock offering and a $425 million expense tied to settlement of a government approval of its dealings in auction-rate securities.

Bank of New York Mellon ( BK) and BB&T ( BBT) announced declines in profit of 53% and 19%, respectively.

Beyond the financials, Nokia ( NOK) reported declining profit. Continental Airlines ( CAL) said it lost money for the quarter, in part because of high fuel costs. Southwest ( LUV) registered its first quarterly loss in 17 years as it wrote down its fuel cost-hedging portfolio.

On a positive note, coal company Peabody Energy ( BTU) reported a 59% increase in third-quarter earnings on rising revenue.

Hogan of Jefferies said he foresees better-than-expected earnings statements for this quarter but lackluster forward guidance. He predicted that during the first half of next year, the market will begin to price in a broad economic recovery to be staged in the third and fourth quarters of 2009.

Shifting to economic data, the Department of Labor's September consumer price index showed that prices were unchanged for the month, better than the 0.1% increase expected by economists. The core rate of price increases came in at 0.1%, below a 0.2% increase in August.

The Department of Labor also reported that, for the week ended Oct. 11, jobless claims declined by 16,000 to 461,000, below a consensus estimate of 470,000 and down from 477,000 the previous week.

Industrial production numbers from the Federal Reserve showed a 2.8% decline in production, the largest decline since December 1974. The Fed estimated that hurricanes accounted for 2.25% of the decline.

The Philadelphia Fed's October manufacturing index registered at -37.5, down from 3.8 in September and worse than the -5 forecast by economists.

Looking at commodities, crude oil was declining $4.89 to $69.65 a barrel. Gold was slipping $46.40 to $792.60 an ounce.

Longer-dated U.S. Treasury securities were mixed. The 10-year note was unchanged, yielding 3.94%, and the 30-year was down 16/32, yielding 4.22%. The dollar was gaining on the euro and pound but lagging the yen.

Overseas, European markets such as the FTSE in London and the DAX in Frankfurt were trading lower. In Asia, the Nikkei in Japan and the Hang Seng in Hong Kong closed with losses.