Retailers wave the warning flags

Wal-Mart says its shoppers are concerned about their finances; Nordstrom, one of the better-performing retailers, warns on its third quarter and misses sales forecast.

NEW YORK -- A slew of earnings warnings from retailers Thursday, on top of poor September sales numbers, added credence to concerns that consumers are feeling tapped out and that retailers are headed for a difficult holiday period.

"Retailers really struggled last month because of slow sales and also because of the warm weather drag," said Ken Perkins, president of Retail Metrics.

Warner-than-usual September and early-October temperatures around the nation were blamed by some retailers for disappointing sales.

High-end seller Nordstrom, which has been one of the best-performing retailers, said Thursday that sales at its stores open at least a year - a key measure of retail performance known as same-store sales - rose 3.2 percent, missing analysts' forecasts for a 5 percent increase.

What's more, the retailer cut its third-quarter profit guidance to between 50 and 53 cents a share, much lower than its prior outlook of 61 to 64 cents a share.

Nordstrom said it struggled with much higher inventory levels it had planned for, a possible sign that its shoppers bought less.

Dow hits all-time high

Big blue-chip barometer hits intra-day record of 14,111 as Wall Street resumes the recent advance; Citigroup warning, drop in ISM index fuels hope of Fed rate cut.

NEW YORK -- Stocks surged Monday afternoon, with the Dow touching an all-time high above 14,110 as investors shrugged off a profit warning from Citigroup and instead focused on the possibility of more Fed rate cuts.

The Dow Jones industrial average (Charts) added around 210 points with an hour left in the session, rising as high as 14,111.53 and setting a new all-time intra-day high. The previous intra-day high was 14,021.95 from July 19.

The broader S&P 500 (Charts) index and the tech-fueled Nasdaq composite (Charts) both gained 1.3 percent. The Russell 2000 (Charts) small-cap index jumped more than 2 percent.

"You're seeing a continuation of the recent momentum," said Chris Johnson, CEO of Johnson Research Group. "There was unfavorable news in the financial arena, but the market is still rallying, which tells you that investors are afraid of getting left behind."

Investors were also perhaps reacting to hopes that any so-called "bad news," whether it be weak bank earnings or a dip in the ISM index, means that the Federal Reserve is more likely to cut interest rates again at its next policy meeting scheduled for the end of the month.

Falling home prices hurt borrowers, neighbors

Economist estimates inflation-adjusted value of $23 trillion housing market could fall by $3 trillion by next year.

NEW YORK -- If home prices fall as forecast, the $23 trillion housing market could lose $3 trillion in value by August 2008, a leading housing economist and former mortgage bank president told lawmakers on Wednesday.

Between 1998 and early 2006, when housing prices peaked, home values rose 86 percent on an inflation-adjusted basis, Robert Shiller, a professor of economics at Yale University, said at a hearing about the subprime crisis held by Congress's Joint Economic Committee.

Since that peak, Shiller noted, real home values have fallen 6.5 percent and they're forecasted to fall at least another 7 percent on average in the next year.

That combined decline could translate into a $3 trillion loss of wealth for households, said Alex Pollock, a resident fellow at the American Enterprise Institute and the former CEO of the Federal Home Loan Bank of Chicago, in his written testimony.

Those hardest hit likely would be homeowners with subprime adjustable-rate mortgages (ARMs) whose payments are scheduled to reset to higher levels in the next year - in some cases by as much as 50 percent. Refinancing out of those loans, already made difficult by the recent credit crunch, will be out of reach should a borrower's home price fall below the value of his loan in the next year, said Martin Eakes, CEO of the Center for Responsible Lending, during his testimony.

That's why he and Shiller were urging lawmakers to act quickly to pass measures to aid struggling homeowners saddled with high-cost predatory loans.

Helping them with foreclosure avoidance wouldn't just assist the mortgage borrower but his neighbors, too, Eakes asserted. He cited a study that estimates that for every foreclosure on a block, values on homes within an eighth of a mile are likely to fall 1.14 percent in value.

Lawmakers have been considering what steps, if any, to take both to contain the current subprime contagion and also to prevent another mortgage meltdown in the future.

A number of proposals have been put forth, including one by Sen. Charles Schumer (D-NY), chairman of the Joint Economic Committee and a member of both the Senate banking and finance committees. Schumer's bill is aimed at making it easier for homeowners with subprime ARMs to refinance and to help home buyers in high-cost markets get a mortgage since even those with good credit have been shut out recently.

Among the measures he calls for: temporarily lifting the portfolio caps allowed for Fannie Mae and Freddie Mac by 10 percent, or $145 billion. Those caps apply to the amount of mortgage assets the government-sponsored agencies buy and own directly (as opposed to their other function - which is to buy, pool and sell mortgages as mortgage-backed securities).

Half of the cap increase would be earmarked for the purchase of subprime refis with scheduled interest-rate resets between June 2005 and December 2009. That would potentially encourage lenders to offer them, since they know Fannie and Freddie would guarantee a secondary market in which the lender could sell the refis.

Those who oppose such a move, such as the White House and the Office of Federal Housing Enterprise Oversight (OFHEO), which regulates both agencies, contend that such a big increase would not be prudent given the accounting problems both Freddie and Fannie have had in recent years.

To date, the Federal Housing Administration has already loosened its criteria for refinancing. And eligibility requirements for FHA loans would be further liberalized if FHA reform legislation passes into law, which many are expecting.

Group bids $150 million for Aeromexico

Subsidiary of Citigroup bids for majority stake of Mexican airline; Aeromexico says it will reply within 10 business days.

MEXICO CITY (AP) -- Mexican airline company Consorcio Aeromexico SAB said Friday that a trust run by a unit of Citigroup has launched a $150 million tender offer for the company's shares.

Aeromexico said its board of directors will issue its opinion on the latest offer no later than 10 business days. The board had already endorsed an earlier offer from other local investors as "reasonable from a financial point of view."

The trust run by Citigroup's (Charts, Fortune 500) local banking unit Banamex is offering 1.68 pesos (15 cents) a share for between 50.1 percent and 100 percent of Aeromexico's 992.4 million shares, the airline said in a filing with the local stock exchange.

The offer is open until Oct. 15 and could be extended until Nov. 30. Banamex's brokerage unit is acting as the intermediary in the transaction.

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The trust's bid was first announced Sept. 12, and represents a 53 percent premium over the 1.10 pesos (10 cents) a share offer made last month by local businessmen Moises Saba Masri and Alberto Saba Raffoul.

Both offers would be contingent on the Mexican state selling some or all of its 62 percent stake in Aeromexico. The government has said that it would sell the shares through a public offer unless a buyer emerged

Barclays says trading unit profitable in August

British bank, with a deal in the balance, fears major losses from overexposure to risky mortgages.

LONDON (AP) -- Barclays, the British bank in a bidding war for ABN Amro Holding, said Monday that its securities unit "traded profitably" last month, easing fears that the bank was overexposed to the credit crisis that has swept global markets.

Barclays (Charts), Britain's third-largest bank, borrowed twice in two weeks from the Bank of England's emergency loan facility this month, but sources said at the time that the loans were due to technical glitches rather than a shortage of funds.

"Barclays Capital traded profitably in August 2007, after full allocation of costs and the mark to market of all positions," said Bob Diamond, head of investment banking at Barclays, in a statement coinciding with an investor presentation in New York. "Year-to-date profits are well ahead of 2006."

Shrinking global credit levels started with defaults on U.S. subprime mortgages, or home loans made to people with weak credit histories. The crisis has spread because banks have repackaged risky loans with the more reliable, and sold them to a wide range of investors across the globe.

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Attention was drawn to Barclays when it turned to the Bank of England as a lender of last resort - once after a loan from HSBC Holdings was delayed and again after a breakdown in the banking clearance system.

"I find it amazing there was any question about a bank the size and quality of Barclays to fund itself," Diamond said in notes prepared for the U.S. investor presentation and posted on the Barclays Web site. "In fact, as in previous times of market turbulence, we've been net recipients of liquidity as a haven in rough seas."

Diamond said that Barclay's mortgage and asset-backed business has been a good growth area, but accounted for less than 5 percent of its revenue based on its first-half results.

"Subprime is an even smaller piece of this," he said.

Diamond also addressed concerns about Barclay's structured investment vehicles, known as SIV-lites.

Barclays denies exposure to failed debt vehicles

Edward Cahill, who was head of the European collateralized debt obligation division, resigned earlier this month, and the bank injected $1.6 billion into a SIV-lite run by Cairn Capital to rescue it from collapse after a failed attempt to raise money in the credit markets.

Two similar funds set up by Barclays Capital, Mainsail II and Golden Key, were forced to begin selling assets earlier this month because they were unable to raise new financing.

Diamond said Barclays had structured four SIV-lites for managers looking to increase their exposure to credit, but neither selected nor managed the assets.

"As liquidity in the short-term debt markets has tightened and asset prices have declined we've been working with our clients to restructure these vehicles," he said, adding those moves were not "bailouts."

"It's also worth noting that SIV-lites constitute in total about $10 billion of a market in asset-backed commercial paper worth $1.2 trillion," he said.

Thornburg raises $1.44B to relaunch loans

Residential mortgage lender announces deal backed by ARMs; amount is enough to let firm repay what it owes and start issuing mortgages again.

SANTA FE, N.M. (AP) -- Thornburg Mortgage, a residential mortgage lender, said Tuesday it raised $1.44 billion in a deal backed by adjustable-rate mortgages, giving it enough money to start making loans again.

Thornburg (Charts), which specializes in adjustable-rate mortgages of more than $417,000, said the financing allows it to repay $1.37 billion in borrowings, clearing the way for new loan originations.

Mortgage lenders originate loans and then typically package them together for sale to bigger banks, who then slice them into securities. Demand on this so-called secondary market has waned, making it difficult for lenders to raise money to initiate mortgages.

Thornburg said the money it raised is backed by $1.44 billion in prime-rated ARM loans in the publicly registered Thornburg Mortgage Securities Trust.

China's top 100 companies

Banks with hot IPOs, plus surging energy demand, propelled a dozen new arrivals onto our list of China's largest companies.

(Fortune Magazine) -- A rush of listings on the Hong Kong and Shanghai exchanges added a dozen newcomers to Fortune's annual list of China's 100 largest publicly traded companies. One of them had the largest share offering in the world: Industrial & Commercial Bank of China, which raised $21.9 billion last October. As China's biggest bank by revenue and Asia's most profitable bank, with profits of $6.2 billion last year, it grabbed the No. 4 spot on this year's list.

The Bank of China, which also had a successful IPO, debuted at No. 5. While China's economy grew nearly 11 percent last year, the revenue cutoff for this year's list rose 46 percent, to $1.9 billion, compared with last year's $1.3 billion.

Global 500: The world's largest corporations

The country's gnawing demand for energy helped keep China Petroleum & Chemical (Charts) in its No. 1 position for the seventh year in a row, with revenue up almost 34 percent, to $134 billion.

State-owned companies continued to dominate the list, taking the top ten spots. The largest private company on the list, computer maker Lenovo, fell four places, to No. 11, even though its revenues rose 10 percent, to $14.6 billion.

The China 100 was compiled by the editors of Fortune China in cooperation with the Finet Group, a Hong Kong--listed company specializing in providing business information about China, and was first published in Fortune China. In compiling the list, Fortune China looked at Chinese companies listed on the stock exchanges in Shenzhen, Shanghai, Hong Kong, Singapore, London, and New York City. The companies are ranked by 2006 revenues. Figures were provided by the companies to the relevant stock exchanges and obtained from Bloomberg.

Subprime hits another German bank

Owners of SachsenLB hope to sell the bank quickly after suffering losses from U.S. mortgage crisis.

FRANKFURT (Reuters) -- The owners of stricken state lender SachsenLB aim to sell the German bank quickly after its near collapse under heavy losses from U.S. subprime mortgages and other risky debt, sources familiar with the matter said.

Last week a group of state banks said they would rescue SachsenLB, the second German casualty, after the subprime mortgage crisis led to difficulties in world credit markets.

In return for a 17 billion euro ($23.1 billion) credit line to keep SachsenLB afloat, its owners - the eastern state of Saxony and local community savings banks - were forced into agreeing to its sale.

Subprime on the Rhine

At least four regional state lenders, or Landesbanks, are interested - WestLB, LBBW, NordLB and BayernLB, one source familiar with the matter said on Friday.

SachsenLB's owners will decide on a buyer over the weekend, he said, adding that Stuttgart-based LBBW was the favorite. A second source said LBBW, Germany's biggest Landesbank, was primed to buy as long as the risks were ring-fenced.

The sale is a milestone in Germany, where few state-owned banks are ever put up for auction. It also is an indication that the subprime mortgage crisis may ultimately loosen the German government's dominance of the country's banking industry.

Landesbanks such as SachsenLB were traditionally an arm of local government used to influence economic development. Their owners are reluctant sellers, fearing a loss of this influence.

But the Landesbanks have been among the hardest hit by the subprime crisis. Many had entered this risky territory in a bid to shore up profits after much of the support they had received from government was outlawed by the European Union.

Battered image

Germany has taken the brunt of the European fallout so far from problems stemming from subprime home loans as two of the country's banks have almost collapsed, requiring high-profile industry bailouts.

The lifeline to SachsenLB came hot on the heels of the near collapse of small-company lender IKB. It was also saved by a group of banks including state-owned lender KfW, its biggest shareholder.

Earlier on Friday, another Landesbank - BayernLB - acknowledged it too had invested in subprime U.S. home loans but did not say how much it had tied up in the risky mortgages.

BayernLB's announcement further dents the image of German banks abroad.

Foreign banks had already been growing wary of lending to them as the casualty toll from subprime problems rises. Earlier this week, the head of state bank WestLB said the country's banks faced a crisis because foreign banks were reluctant to lend to them.

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Alexander Stuhlmann told journalists the sector was in a "not uncritical situation," adding that German banks had created the impression abroad that the whole sector had a problem by rescuing IKB.

Germany's central bank and government have repeatedly called for calm over the credit spasms unleashed by the uproar.

Government involvement in banking has made Europe's biggest economy one of the continent's most overbanked, squeezing profits and forcing lenders to look abroad for new ways to bolster profits. As a result, German groups invested heavily in packets of debt that included risky U.S. home loans, racking up profits as the market boomed.

But slowing house prices and higher interest rates sparked defaults on subprime mortgages - given to people with a weak credit record - and left those banks facing heavy losses

Bonds keep climbing on credit fears

Investors continue to pour into Treasurys in a flight to quality, while investors bet on fed funds rate cut.

The dollar retreated against the euro and the yen.

The 10-year note rose 11/32, or $3.44 on a $1,000 note, to yield 4.58 percent, down from 4.65 percent late Monday.

Panic eases, credit woes persist

The 30-year note gained 11/32 to yield 4.94 percent, down from 4.98 percent in the previous session. Bond prices and yields move in opposite directions.

Shorter-term debt continued to post big gains as the five-year gained 9/32 to yield 4.23 percent. The two-year note rose 5/32 to yield 4.01 percent.

Investors again sought shelter in Treasurys amid worries that more credit market troubles were forthcoming.

Last week, the Federal Reserve tried to allay those fears by cutting the discount rate 50 basis points. The move provided temporary support to the battered stock market, but investors continued to bet during Monday's session that more troubles were ahead.

But with evaporating credit conditions, much of Wall Street believes that the central bank will have to take additional action, including cutting the key federal funds rate, which directly impacts consumer loan rates. That rate remains at 5.25 percent.

"There is a huge liquidity crisis that has not gone away despite the Fed's efforts of last week," David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Conn., told Reuters late Monday.

In related news, the Chinese central bank raised interest rates in an effort to stabilize inflation expectations.

In currency trading, the dollar retreated versus the yen, trading at ¥114.60, down from ¥114.96 Monday, while the euro bought $1.3510, up from $1.3485.

Stocks soar into the weekend

Wall Street rallies, with the Dow spiking 230 points as Fed discount-rate cut soothes credit market worries. Yet investor fears persist.

NEW YORK (CNNMoney.com) -- Stocks surged Friday after the central bank cut its mostly symbolic discount rate, easing worries about the credit and mortgage markets that have roiled Wall Street for weeks.

The Dow Jones industrial average (up 233.30 to 13,079.08, Charts) jumped 233 points, or 1.8 percent, after soaring more than 300 points earlier in the session. The tech-fueled Nasdaq composite (up 53.96 to 2,505.03, Charts) index rose 2.2 percent. Both the Dow and Nasdaq snapped 6-session losing streaks.

The broader S&P 500 (up 34.67 to 1,445.94, Charts) index climbed nearly 2.5 percent, clawing back into positive territory for the year.

The gains were broad based, with 25 out of 30 Dow components rising. Banks, energy, steel, retailers, telecom and technology led the charge.

However, early-week losses left the markets lower for the week, with the Dow down 1.7 percent, the S&P 500 down nearly 1 percent and the Nasdaq down 1.9 percent.

Fed cuts discount rate

Stocks got pummeled in the first three days of the week and looked like they were heading for another battering Thursday. But investors staged an impressive comeback, with the Dow bouncing back from a 342-point loss to end that session down by just 15 points. That recovery extended to Friday's session, thanks to the move by the Fed.

Although it did not cut the more widely-watched fed funds rate, which affects consumer loans, the central bank did cut the discount rate, which impacts banks and other lenders. The Fed cut the discount rate by a half-percentage point to 5.75 percent, taking Wall Street by surprise and raising bets that it will cut the fed funds rate at the Sept. 18 policy meeting.

"A sense of calm has come over investors, supported by the actions of the Fed," said Art Hogan, chief market strategist at Jefferies & Co.

The move, while largely symbolic, was an attempt by the central bank to "promote the restoration of orderly conditions in financial markets," the Fed said in a statement.

It did the trick, at least on Friday, cooling investor jitters after a period of great uncertainty about how the subprime mortgage and credit market problems will hit the broader economy.

Although the problems in those markets remain, "just knowing that the Fed is ready to assist is reassuring," Hogan said.

Whether that translates to further stock gains remains to be seen.

"We'll have to wait and see how the market reacts to the next piece of negative news," Hogan said, referring to ongoing troubles with risky U.S. mortgages and the credit market.

Next week is light on market-moving economic news, highlighted by the July leading economic indicators report, due Monday, and July readings on durable goods orders and new home sales, expected Friday.

On the corporate front, earnings are due from home improvement retailer Lowe's (up $0.06 to $26.87, Charts, Fortune 500) on Monday and Staples (down $0.02 to $23.25, Charts, Fortune 500), Target (up $1.43 to $61.18, Charts, Fortune 500) and other retailers later in the week.

Investors will also be looking to see if the Fed infuses more money into the U.S. banking system, as it has been doing lately.

Senator pushes for ratings agency review

Senator Dodd of Connecticut urges examination of ratings agencies' high assessment of mortgage-related assets.

WASHINGTON (Reuters) -- U.S. Senate Banking Committee Chairman Christopher Dodd on Friday called for an examination of the credit rating agencies' role in valuing the subprime mortgage securities market.

Dodd, a Connecticut Democrat and presidential candidate, also urged federal regulators to raise the investment portfolio cap by 5 percent for mortgage finance companies Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500).

During a conference call with reporters, Dodd expressed "great concern" about how credit rating agencies assessed and rated packages of mortgage-related assets, which include collateralized debt obligations.

"Clearly there was other information that should have warranted something else," he said. "We need to have a thorough examination of that."

Banks, Wall Street firms lead stock charge

His remarks to reporters came one day after a European Commission official announced a review of the code used by the raters in a probe that could be critical of the industry.

EU Internal Market Commissioner Charlie McCreevy said the crisis in the subprime mortgage sector has highlighted apparent failings in the voluntary code now used by the raters.

The three largest U.S. raters are Moody's Corp.; Standard & Poor's, a unit of McGraw Hill Cos. Inc.; and Fitch, a unit of France's Fimalac SA.

Moody's (Charts) shares closed 78 cents higher at $49.98 and shares of McGraw-Hill (Charts, Fortune 500) finished up 29 cents at $49.14 on the New York Stock Exchange on Friday.

Barney Frank, chairman of the House of Representatives Financial Services Committee, has said he would hold a hearing this autumn to examine how credit ratings agencies contributed to a collapse of the subprime mortgage market.

In May, the U.S. Securities and Exchange Commission adopted new rules to foster competition in an industry dominated by three companies. The rules also cover record-keeping requirements and financial reporting standards.

Cliff Hyatt, a former SEC enforcement attorney now with law firm Pillsbury Winthrop Shaw Pittman, said credit rating agencies are historically difficult to examine. But, he said, that would not stop Congress from asking rating agencies tough questions about how they operate.

Dodd and other congressional Democrats have called on the Office of Federal Housing Enterprise Oversight (OFHEO), which regulates Fannie and Freddie, to temporarily lift the portfolio cap so the government-sponsored companies can buy more mortgages.

Frank said Friday the Senate should raise the limit on the size of loans that can be bought by Fannie and Freddie past its current level of $417,000 when lawmakers take up reform legislation.

"It now is clear we underestimated in the House bill how far we should raise the conforming loan limit, and the current crises in the mortgage market demonstrate we should raise it to a higher level," the Massachusetts Democrat said in a statement.

Fannie and Freddie are the nation's two largest sources of mortgage financing and have a combined $1.4 trillion investment portfolio of mortgages.

Fannie asked to lift the cap to allow for additional 10 percent investments to its portfolio, but OFHEO denied that request for the moment.

A higher cap is also opposed by the Treasury Department, the Federal Reserve, and President George W. Bush, who say their holdings are dangerously bloated.

Sen. Charles Schumer, a New York Democrat, said this week that he plans to introduce legislation to temporarily lift the cap between 5 percent and 10 percent if OFHEO fails to do so.

Dodd said the move was urgently needed in financial markets and could not wait for Congress to pass legislation.

"There's enough authority with existing law today ... to allow this portfolio cap to go up 5 percent," Dodd said. "The idea that we have to wait and do the reforms first before they can respond to this is not a legitimate answer to the question."

GM chief says sales are holding up

CEO Rick Wagoner is feeling positive about U.S. auto sales despite the tough market.

ROYAL OAK, Mich (Reuters) -- The top executive at General Motors Corp (Charts, Fortune 500) said on Friday that U.S. consumers appeared to be holding up well despite the recent credit crisis that roiled world markets and prompted the U.S. central bank to cut rates.

Rick Wagoner, the automaker's chief executive, also said that the crisis hadn't had any big impact on auto sales. He said pickup sales so far this month were doing "better" but that the overall market remains tough.

Wagoner said that ResCap, GMAC's home lending unit, was also weathering the current market volatility.

Asked about the company's negotiations with the United Auto Workers, Wagoner said it was too early to speculate whether they would reach a deal before the contract expires on Sept. 14.

Bulls charge on Fed move

Stocks remain sharply higher heading toward the closing bell after the Federal Reserve cuts discount rate, but credit fears persist.

NEW YORK (CNNMoney.com) -- Stocks posted significant gains Friday afternoon but remained off session highs, as the Federal Reserve's decision to cut a little watched interest rate helped soothe ongoing credit market worries.

The Dow Jones industrial average (up 170.14 to 13,015.92, Charts) gained about 180 points, or 1.4 percent, with an hour left in the session, after soaring more than 300 points at the open.

The broader S&P 500 (up 26.89 to 1,438.16, Charts) climbed nearly 1.9 percent while the tech-fueled Nasdaq composite index (up 42.68 to 2,493.75, Charts) rose about 1.8 percent.

"A sense of calm has come over investors, supported by the actions of the Fed," said Art Hogan, chief market strategist at Jefferies & Co.

Fed cuts discount rate

"Just knowing that the Fed is ready to assist is reassuring," Hogan said. Going forward, however, "we'll have to wait and see how that market reacts to the next piece of negative news," he added referring to ongoing troubles with risky U.S. mortgages and the credit market.

"Volatility is going to be the norm for a while."

All three major gauges soared out of the gate on news that the Fed cut the discount rate, which the central bank charges qualified lenders - mainly banks - for temporary loans, by half a point to 5.75 percent, taking Wall Street by surprise.

The move, while largely symbolic, was an attempt by the central bank to "promote the restoration of orderly conditions in financial markets," the Fed said in a statement.

While the Fed did not cut its more closely watched Fed funds rate, the action did soothe nervous investors who have been gripped by uncertainty about how hard the subprime mortgage and credit market problems would hit the broader economy.

The move provided a big lift to the financial sector. Shares of Wall Street banks Goldman Sachs (up $3.78 to $173.63, Charts, Fortune 500) and J.P. Morgan Chase (up $1.92 to $47.39, Charts, Fortune 500) climbed 2 percent and 4 percent respectively, while the AMEX Securities Broker/Dealer index (up $7.67 to $220.94, Charts) gained nearly 4 percent.

Even the troubled mortgage lender Countrywide Financial (up $2.07 to $21.02, Charts, Fortune 500) rebounded nicely from Thursday's losses on the news, climbing more than 10 percent.

Wall Street had been bracing for another bumpy session Friday, just a day after the Dow and the other major gauges fell enough during the session to be down 10 percent from the highs hit just a month earlier, a sign of a market correction.

But stocks made a stunning recovery. The Dow industrials, which had been down more than 300 points during the session, closed down just 15 points.

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On the corporate front, shares of organic grocer Wild Oats Markets (up $2.79 to $18.00, Charts) soared 18 percent after a bid by federal antitrust regulators to temporarily block its purchase by rival Whole Foods Market (up $2.90 to $44.07, Charts, Fortune 500) was rejected by a federal judge. But the FTC filed an appeal today on the decision.

Shares of oil majors including Exxon Mobil (up $3.25 to $83.92, Charts, Fortune 500), BP (up $1.28 to $64.28, Charts) and Chevron (up $2.59 to $83.98, Charts, Fortune 500) all rose more than 2 percent on higher crude prices, which were supported by the Fed's move and the growing strength of Hurricane Dean.

Light, sweet crude oil rose 76 cents to $71.76 a barrel on the New York Mercantile Exchange.

Early Friday morning, Midwest Express (up $0.83 to $15.53, Charts) accepted a raised $17-a-share offer from a group led by private equity firm TPG Capital and Northwest Airlines (up $0.01 to $15.99, Charts, Fortune 500), ending the hostile bid for the company by rival AirTran Holdings.

Dow component Hewlett-Packard (up $0.98 to $47.03, Charts, Fortune 500) reported better-than-expected earnings and issued a stronger-than-forecast outlook late Thursday, sending its shares about 2 percent higher.

Of the 30 stocks in the Dow, 23 rose and seven fell.

Market breadth was positive. Winners beat losers on the New York Stock Exchange by 6 to 1 on volume of 1.8 billion shares. Advancers topped decliners by 3 to 1 on volume of 2.1 billion shares.

In economic news, consumer sentiment fell more than expected in August, according to a survey published Friday by the University of Michigan.

Short-term Treasury prices and the 10-year note were modestly higher with the yield on the benchmark note at 4.68, up from 4.67 percent late Thursday. Bond prices and yields move in opposite directions.

Overseas, European markets finished sharply higher after the Fed discount rate cut. But Asian markets tumbled Friday, with Japan's Nikkei index skidding 5 percent, posting its worst day since the Sept. 11 attacks.

The dollar eased versus the euro and the yen.

COMEX gold for December jumped $8.80 to $666.80 an ounce

UBS warns about market turmoil

Swiss banks says ongoing turbulence could hurt its investment banking results in the second half.

ZURICH (Reuters) -- Swiss bank UBS, the world's largest wealth manager, beat forecasts with record second-quarter profits but warned that market turmoil was likely to hit its investment banking business in the second half of the year.

In an explicit warning that the upheaval in credit markets is likely to take a heavy toll, UBS said that if turbulent conditions prevailed throughout the third quarter, "UBS will probably see a very weak trading result in the investment bank."

UBS is the first big bank to comment on trading conditions since last week's havoc in financial markets forced central banks to intervene in the interbank lending market to restore order.

"The results are fine. It's all about the outlook. You have some earnings downgrades coming," said Kinner Lakhani at ABN Amro. "It shows the extent of the drag from the investment bank, another example of the tail wags the dog."

UBS drew a line under its hedge fund, Dillon Read Capital Management, which it said was closing in May after running up big losses. It said there would be no further costs after it took a pretax charge of 384 million francs in the second quarter.

The bank also said it had paid back 1.5 billion francs to outside investors following the closure.

Net second-quarter net group profit rose to 5.622 billion francs ($4.7 billion) from 3.147 billion in the second quarter of 2006 and 3.275 billion in the first quarter. It exceeded an average forecast of 4.751 billion by 11 analysts in a Reuters poll.

The result included a 1.926 billion franc windfall from the sale in June of UBS's 20.7 percent stake in Swiss private bank Julius Baer.

The results are the first to be unveiled since Peter Wuffli's abrupt departure and replacement as chief executive officer in early July by Marcel Rohner, who formerly ran the bank's wealth management business.

Rohner said he was comfortable with the level of the bank's exposure in leverage finance with a market share of about 4 percent. He also said trading in U.S. mortgage-backed securities market was satisfactory.

"In July we have experienced significant dislocation in the U.S. mortgage market, but we have had a satisfactory trading result," Rohner told a conference call with journalists.

The bank said its traditional strength in wealth and asset management would help see it through the second half, with weaker investment banking results "offset by predictable earnings from wealth and asset management."

Rohner said the second-quarter results were outstanding even with the windfall from the sale of Julius Baer stripped out.

"It is a record result even if we exclude the contribution from our sale of our stake in Julius Baer. We have 3.455 billion, which is the best ever quarterly performance."

Net new money in wealth management was 35.2 billion francs, ahead of the average forecast for 32.2 billion.

Profits were boosted by record net fee and commission income of 8.099 billion francs, a rise of 26 percent over the same quarter last year.

Analysts had expected UBS to have an exceptional quarter in cash equities and derivatives trading but had been nervously waiting to find out whether the bank would take more charges from Dillon Read.

Wall Street: Down but not out

Major gauges cut losses but still end in the red for day 2 as investors weigh Fed's $38 billion infusion into the banking system. Worries remain about tightening credit, subprime mortgage market.

NEW YORK (CNNMoney.com) -- Stocks fell Friday, but recovered from bigger losses earlier in the session after the Federal Reserve pumped $38 billion into the banking system, soothing some worries about tightening credit and the subprime mortgage market fallout.

Treasury bond prices fell, raising the corresponding yields. Oil prices dipped, and gold prices rebounded.

• 
  

The Dow Jones industrial average (down 31.14 to 13,239.54, Charts) lost 0.2 percent, after falling more than 200 points in the morning. On Thursday, the Dow slumped 387 points, suffering its second biggest one-day point and percentage decline of the year.

The broader S&P 500 (up 0.55 to 1,453.64, Charts) index ended little changed, recovering from earlier losses, while the tech-fueled Nasdaq Composite (down 11.60 to 2,544.89, Charts) index gave up 0.5 percent after falling more in the morning.

Who can't get a mortgage now?

All three major gauges managed to end modestly higher for the week, with a three-day rally in the first half of the week trumping Thursday's battering and Friday's mixed trade.

For the week, the Dow gained about 0.4 percent, the S&P 500 rose 1.4 percent and the Nasdaq composite added 1.3 percent.

The volatile nature of trading is unlikely to ease up anytime soon, said Randy Diamond, an equity trader at Miller Tabak. However, "If this thing continues to play out as it has on a daily basis, people may become less jumpy," he said.

"Eventually, the market will have to pick a direction and go with it," Tabak said. "But it's too hard to tell now which way it will go."

Next week brings a bevy of key readings on the economy, including the July retail sales and June business inventory reports on Monday.

Mortgage meltdown contagion

The Dow had slumped more than 200 points in the morning, reflecting a broad market selloff, before trying to rebound near midday after the second wave of the Federal Reserve's cash infusion. The afternoon was again choppy, as investors struggled to position themselves amid ongoing uncertainty.

Treasury bond prices fell, after having risen in the morning in a classic "flight-to-quality" move into the comparatively safer haven of bonds.

Stocks slumped Thursday as worries about a tightening of the global credit market resurfaced, sparking a broad decline in stocks in the U.S. and abroad.

The worries continued Friday after central banks in Europe, Japan, Australia and the U.S. all made billions available.

However, investors found some solace in news later in the session that the U.S. Federal Reserve had upped its initial influx of $19 billion to first $35 billion and then $38 billion, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

"There may be a little less fear now," Saluzzi said. "It may not really make much of a difference, but it settles some feelings."

Yet, concerns about credit tightening and subprime aren't going away anytime soon, and the market is bound to remain vulnerable in the weeks ahead, let alone next week.

"This is still an emotional market and there are a lot of news events that could happen over the weekend that could weigh on stocks next week," Saluzzi said.

Earlier in the week, French bank BNP Paribas said it was halting withdrawals from three of its funds because of current market conditions, while Goldman Sachs (Charts, Fortune 500) said two of its hedge funds have sold some of their positions because of recent losses.

Similar news from other financial institutions this weekend or early next week could spark another leg down for the stock market, Saluzzi said.

FDA to rule on Wyeth's anti-psychotic drug

Wyeth's experimental schizophrenia drug to receive FDA decision this week; anti-psychotic market faces impending generic pressure.

NEW YORK (CNNMoney.com) -- The FDA will decide soon whether Wyeth's experimental drug for schizophrenia merits approval for the U.S. market.

The Food and Drug Administration is expected to make a decision as early as Friday regarding the schizophrenia drug bifeprunox, developed by Wyeth (up $1.21 to $50.55, Charts, Fortune 500) and its partner, Solvay Pharmaceuticals.

More drug news... Merck, Sanofi lab probed for foot-and-mouth For Vivus, there may be life after Viagra Medtronic discs OK'd by FDA experts

"There's more downside risk than upside," said Jon LeCroy, analyst for Natexis Bleichroeder.

The Madison, N.J.-based Wyeth could use some good news, since its stock tanked more than 10 percent in July, when the review of its experimental antidepressant Pristiq was stalled by the agency.

"The stock's in a precarious spot here, because they had that other drop," said LeCroy, adding that the FDA might step cautiously around bifeprunox because it causes nausea as a side effect.

LeCroy said that bifeprunox sales have the potential to peak at $1 billion annually. But he said growth would be stymied beyond that, because the industry for anti-psychotics as a whole will soon be constrained by generic competition.

A drug to slow Alzheimer's cruel march

The patent for Johnson & Johnson's (up $0.41 to $62.49, Charts, Fortune 500) blockbuster Risperdal is expected to run out in 2008. The patent for Eli Lilly & Co's (up $1.88 to $58.40, Charts, Fortune 500) Zyprexa (which totaled $2.3 billion in the first half of 2007) is slated to expire in 2011.Name-brand drug sales typically plunge when a patent expires, because competition opens to low-cost generics.

"Generic Zyprexa will make it tougher for all these schizophrenia competitors," said Michael Krensavage, analyst for Raymond James & Associates.

MOVE THIS UP: But generic competition isn't the only challenge for bifeprunox, said Krensavage. The analyst said the drug has demonstrated "questionable efficacy" in treating schizophrenia. Krensavage said he wasn't convinced the drug would sail past the FDA, and that the drug doesn't have what it takes to be a billion-dollar blockbuster.

Generic competition is expected to put pressure on other players in the schizophrenia class of drugs, including Abilify from Bristol-Myers Squibb (up $1.01 to $29.93, Charts, Fortune 500), with nearly $800 million in sales during the first six month of 2007, AstraZeneca's (up $0.47 to $51.04, Charts) Seroquel, with nearly $2 billion in first-half sales, and Pfizer's (up $0.26 to $24.61, Charts, Fortune 500) Geodon, with $400 million in the first half.

Even as the industry faces low-cost competition from generic drugmakers, it also stands to get more crowded. Though bifeprunox is the most advanced experimental drug in the anti-schizophrenia class, there are others in the wings. Schering-Plough acquired asenapine, through its recent purchase of Organon Biosciences, and the drug is in late-stage tests. Vanda Pharmaceuticals completed tested with its experimental iloperidone (which it licensed from Novartis) and plans to file with the FDA.

The analysts interviewed for this story do not own stock in companies mentioned here, though Raymond James has received non-investment banking securities-related compensation from Wyeth in the last 12 months.

Bear Stearns president resigns

Two Bear Sterns-managed mortgage funds recently collapsed, triggering a downturn in the credit markets.

(Reuters) -- Bear Stearns President and co-Chief Operating Officer Warren Spector resigned on Sunday, becoming a casualty of a credit risk crisis at the investment bank.

Spector's departure follows Bear Stearns' assertion on Friday that it is weathering the worst storm in financial markets in more than 20 years, after a major rating company warned mortgage credit problems could hurt the investment bank's profits.

Standard & Poor's warned that the recent collapse of two Bear Stearns-managed mortgage funds could hurt the company's performance and reputation for an extended period.

The collapse of the funds triggered a downturn across credit markets, put a damper on corporate buyout financing and sparked fears about Wall Street's trading and banking profits.

Spector's departure is a blow to Bear Stearns (Charts, Fortune 500) because he was regarded as a possible successor to Chairman and Chief Executive James Cayne.

Cayne said in a statement on Sunday: "In light of the recent events concerning BSAM's high grade and enhanced leverage funds, we have determined to make changes in our leadership structure."

Bear Stearns said that, effective immediately, Alan Schwartz has been named the company's sole president, and Samuel Molinaro will become chief operating officer as well as chief financial officer.

Bear Stearns also said that Jeffrey Mayer, co-head of the fixed income division, has been named to the Bear Stearns executive committee.

Bear Stearns said Schwartz joined the company in 1976, becoming head of the investment banking division in 1985. Schwartz was named president and co-chief operating officer in June 2001.

Molinaro joined Bear Stearns in 1986 and 10 years later was promoted to CFO. In 2002, Molinaro was named a member of Bear Stearns' executive committee.

Mayer joined Bear Stearns in 1989, became the head of the mortgage department seven years later and has been co-head of the global fixed income division with Craig Overlander since 2002.

Bear Stearns spooked investors on Friday by saying it has halted share buybacks to preserve capital as it faces the most difficult debt markets in more than two decades.

Bear Stearns held a hastily arranged conference call on Friday after S&P changed its rating outlook on the company to "negative" from "stable," flagging a greater chance of a credit downgrade in the next two years.

While the conference call was aimed at soothing investors' fears, the call, featuring CFO Molinaro and, briefly, CEO Cayne, seemed to exacerbate them as the company's stock lost about 6 percent on Friday.

Freddie CEO wary of more subprime loans - NYT

Richard Syron dismissed the notion that his company should buy distressed loans.

(Reuters) -- The head of Freddie Mac, one of the biggest U.S. mortgage finance companies, dismissed suggestions that his company should step in to bolster sagging financial markets by buying distressed loans, the New York Times reported on Saturday.

Next victims of the credit squeeze

Freddie Mac chief executive Richard Syron said he was wary of calls for Freddie Mac (Charts, Fortune 500) and fellow mortgage finance company Fannie Mae (Charts) to buy loans and securities no longer favored by private investors, the Times said.

With credit pools drying up "there are some loans that are in difficulty," the Times quoted Syron as saying in a telephone interview.

"There are other loans that probably should never have been made and providing more liquidity will make that situation worse in the long term," Syron told the Times.

Syron said Freddie Mac's portfolio size was limited by an agreement reached with regulators.

American Home Mortgage to shut down

Default rates in the subprime segment of the U.S. mortgage market, which serves borrowers with poor credit histories at high interest rates, have jumped in recent months as the housing industry has slowed and home prices have fallen.

The Office of Federal Housing Enterprise Oversight, which regulates both Fannie Mae and Freddie Mac, in July directed them to avoid loans that did not meet standards set in June by bank regulators.

Another devastating decline for the Dow

Blue chip index posts third-biggest drop so far this year, falling 281 points.

NEW YORK (CNNMoney.com) -- Wall Street ended another rollercoaster week with the Dow industrials plummeting about 280 points Friday amid continued credit market fears, sparked by Wall Street bank Bear Stearns.

The Dow Jones industrial average (down 281.42 to 13,181.91, Charts) fell 281 points, or 2.1 percent, marking the third-biggest point drop for the 30-stock index this year.

Friday's session stands in stark contrast to the past two sessions, when the blue chip barometer finished over 100 points higher.

So far this year, the Dow is up 5.8 percent.

The broader S&P 500 (down 39.14 to 1,433.06, Charts) lost nearly 2.7 percent, while the tech-fueled Nasdaq Composite index (down 64.73 to 2,511.25, Charts) tumbled 2.5 percent.

Treasury prices soared as investors sought shelter in the safe haven investments, lowering the yield on the 10-year note to 4.68 percent from the 4.77 percent level reached late Thursday. Bond prices and yields move in opposite directions.

Next victims of the credit squeeze

"A lot of this stuff is being attributed to Bear Stearns' conference call," Ryan Larson, senior equity trader at Voyager Asset Management, remarked just before market selloff gained momentum.

"There's nothing reassuring the market about subprime and that continues to underline the tone in the market - any whisper or negative news and we get a selloff."

Stocks were modestly lower for most of the session until about 2 p.m. when investment bank Bear Stearns hosted a conference call to discuss the company's health, after credit rating agency Standard & Poor's lowered the company's debt rating to "negative" from "stable" in the wake of its recent hedge fund woes,

In a conference call with Wall Street analysts, the company's chief financial officer warned that the recent turmoil in the bond market is as bad as it has been in 22 years.

Those credit worries hurt shares of financial sector players such as Goldman Sachs (down $7.78 to $179.68, Charts, Fortune 500), Morgan Stanley (down $3.26 to $60.62, Charts, Fortune 500) and Lehman Brothers (down $4.67 to $55.78, Charts, Fortune 500) before spreading to the larger market.

Among individual issues, all 30 Dow components finished the session lower.

Investors around the world have been rattled by signs of tougher conditions in credit markets, since tighter credit could raise the cost of borrowing for companies, hurting corporate earnings. This is likely to slow the buyout boom, which has helped prop up stock prices.

Credit market fears helped send global stock markets tumbling last week, with the 30-stock Dow industrials falling 585 points, posting its biggest percentage drop since March 2003.

Wall Street found little solace in Friday's monthly employment report, which revealed that U.S. employers added fewer jobs than anticipated in July. The Institute for Supply Management's service sector reading for the month also came in weaker-than-expected.

While the number of economic reports due out next week look pretty sparse, investors will have the Federal Reserve's policy meeting to look forward to on Tuesday.

Wake up time for the Fed?

The recent turmoil in the stock market has fueled speculation that the central bank may cut interest rates sooner than previously expected, but the Fed is widely expected to leave the Fed funds rate untouched at 5.25 percent, where it has remained since August 2006.

In corporate news, DaimlerChrysler (down $2.06 to $89.12, Charts) completed the sale of its Chrysler Group unit to private equity firm Cerberus Capital Management, bringing an end to the failed 9-year-old merger.

American Home Mortgage closed its doors Friday, cutting nearly 7,000 jobs, after lenders had cut off credit to the mortgage lender.

Take-Two Interactive Software (down $2.75 to $14.16, Charts) warned after the bell Thursday that it would delay its most important upcoming video game, "Grand Theft Auto IV," and that it would post a full-year loss. Shares plunged 16 percent on the Nasdaq.

On the earnings front, both consumer-products maker Procter & Gamble (down $0.42 to $62.88, Charts, Fortune 500) and the No. 1 automaker, Toyota Motor (up $0.31 to $118.90, Charts), reported better than expected profits Friday.

After several busy weeks of companies reporting quarterly results, only a handful of firms are set to report earnings next week including Cisco Systems (Charts, Fortune 500), Sprint Nextel (Charts, Fortune 500) and News Corp (Charts, Fortune 500).

Market breadth was negative. Decliners topped advancers by more than 5 to 1 on the New York Stock Exchange on volume of 2.05 billion shares. Losers beat winners on the Nasdaq by nearly the same ratio on volume of 2.53 billion shares.

Oil prices retreated as the price of U.S. light crude lost $1.75 to $75.11 a barrel on the New York Mercantile Exchange.

The dollar fell against the euro and the yen. COMEX gold for December gained $7.80 to $684.40 an ounce.

Take-Two delays 'Grand Theft Auto IV'

Critical game gets pushed back and will be released in the video game maker's second-quarter of '08; company expects to post a full-year loss.

LOS ANGELES (Reuters) -- Take-Two Interactive Software Inc Thursday delayed its most important upcoming video game, "Grand Theft Auto IV", and warned it would post a full-year loss, before one-time items, sending shares down 17 percent.

"We are very disappointed to reduce guidance after having previously reaffirmed it," Ben Feder, the chief executive who is part of a new management team at the troubled company, said in a statement, referring to the company's previous assessment, in June.

Take-Two (Charts) shares dropped 17.8 percent to $13.90 after hours from a close of $16.91 on Nasdaq.

The game, which had been scheduled for release in October, is now planned for release in the second quarter of Take-Two's fiscal 2008. That means it will not be on store shelves in time for the holidays, dealing a blow to Microsoft Corp (Charts, Fortune 500) and Sony Corp (Charts), who had been banking on the must-have title to help lift sales of their respective gaming consoles, the Xbox 360 and the PlayStation 3.

"It's a disappointment that the game won't come out in the holiday period. It's one of the biggest games of all time," said Janco Partners analyst Mike Hickey, who has a "buy" rating on Take-Two shares. "This is probably going to hurt the sell- through of the PS3 and 360."

Grand Theft Boardroom

In the "Grand Theft Auto" franchise, players assume the role of a thug who, by committing various crimes, works his way up to the top of a criminal organization. The game is notorious, however, for its extreme violence, including letting players run over innocent pedestrians or gun down police officers willy-nilly.

The last version of the game, "Grand Theft Auto: San Andreas" came under fire in 2005 after hidden sex scenes were discovered that allowed players to engage in virtual sex acts.

Take-Two Chairman Strauss Zelnick, who helped lead a shareholder coup that ousted the former management earlier this year, said "certain elements of development proved to be more time-intensive than expected, especially given the commitment for a simultaneous release on two very different platforms."

On a conference call with analysts to discuss the delay, executives said the reason for the move was almost strictly due to technological challenges in completing the game.

The latest version of the game was reviewed Wednesday, they added, and a decision to delay its release was made Thursday.

Feder said the company had already warned retailers about the delay and that they had been understanding.

"Putting 'Grand Theft Auto IV' out in the Easter season or so isn't necessarily the worst thing in the world for them," he said.

Xbox repairs cost Microsoft $1B

Take-Two said that, for the fiscal year ending Oct. 31, it expects revenue of $950 million to $1 billion. It also forecast a loss of $1.25 per share to $1.35 per share, excluding one- time items.

Including costs for stock-based compensation, restructuring, and legal matters, Take-Two forecast a 2007 loss of $2.10 per share to $2.20 per share.

In June, Take-Two said it expected revenue of $1.2 billion to $1.25 billion for the year, with break-even results before one-time items.

"It's a disaster. It's nothing but bad news," said Todd Greenwald, an analyst at Nollenberger Capital Partners.

Asked if a turnaround for Take-Two was in sight, he said: "Someday, but not necessarily in sight. There will be several quarters of what I expect to be disappointing results."

Thursday's announcement marks the second high-profile game mishap under Take-Two's new management team. In June, the company suspended plans to sell "Manhunt 2" after the title was slapped with restrictive ratings for its extreme violence.

11th hour rally on Wall Street

Major gauges break into the black minutes before the closing bell after a tumultuous session.

NEW YORK (CNNMoney.com) -- Stocks rallied late in the session Wednesday as investors weighed credit concerns and oil prices in addition to some better-than-expected economic news and corporate earnings reports.

The Dow Jones industrial average (up 101.77 to 13,313.76, Charts) rose over 150 points, or 1.2 percent after struggling for most of the session.

The broader Standard & Poor's 500 index (up 11.70 to 1,466.97, Charts) added 0.7 percent and the tech-heavy Nasdaq composite index (up 5.37 to 2,551.64, Charts) gained 0.3 percent.

All three major gauges got off to a rocky start on the heels of a stock selloff in the previous session.

But stocks bounced into the black briefly after the Institute for Supply Management reported that nationwide manufacturing activity fell more than expected and the National Association of Realtors' pending home sales index jumped more than expected in June.

Oil prices weighed in following the government's weekly report on crude inventories, which showed a huge drawdown last week. U.S. light crude for September delivery sank $1.26 to $76.95 a barrel after reaching a peak of $78.77, according to Reuters.

In addition, credit concerns, a slumping real estate market and corporate earnings compounded investors nervousness throughout the session, according to Art Hogan, chief market strategist at Jefferies & Co.

"We don't know the magnitude of all of those issues," Hogan said, and "that is giving markets the jitters."

Here's what was moving near the close:

Shaking off the mortgage meltdown

In corporate news, Rupert Murdoch finally won his battle for the publisher of The Wall Street Journal. Dow Jones (up $0.62 to $58.00, Charts) agreed to be taken over by News Corp. (up $0.02 to $21.14, Charts) for $5.6 billion.

Time Warner (down $1.45 to $36.78, Charts), which owns CNNMoney.com, reported second-quarter earnings that topped analysts' estimates and said it has authorized an additional $5 billion stock repurchase. Investors weren't impressed, though, and shares tumbled nearly 5 percent.

Kraft Foods (down $0.30 to $32.45, Charts) posted higher quarterly profit, but shares of the Oreo maker fell.

Alltel (up $0.29 to $66.24, Charts, Fortune 500) rose after the wireless service posted a higher quarterly profit as revenue rose.

Cigna (down $3.23 to $48.41, Charts, Fortune 500) reported lower net income, but operating earnings beat Wall Street expectations. Shares of the health insurer sank 6 percent.

Shares of Qwest Communications (down $0.17 to $8.36, Charts, Fortune 500) also fell 2 percent after the telecommunications carrier said second-quarter profit rose, but came in short of expectations.

DaimlerChrysler (down $1.72 to $89.03, Charts) and Ford Motor (down $0.12 to $8.39, Charts, Fortune 500) both reported sharp drops in July auto sales, while General Motors (up $0.39 to $32.79, Charts, Fortune 500) said sales slumped 22 percent, more than expected. This could be the first month on record that domestic brands fall below 50 percent of overall U.S. auto sales.

After the closing bell Tuesday, Whole Foods (up $2.35 to $39.39, Charts, Fortune 500) posted profit that fell less than Wall Street expected, sending shares up 5 percent.

And Blackboard (down $6.03 to $38.20, Charts) tumbled 13 percent after the educational software company forecast third-quarter sales below Wall Street expectations.

Also on Tuesday, news that a third Bear Stearns (down $4.73 to $116.49, Charts, Fortune 500) hedge fund is reportedly in jeopardy added to jitters. The Wall Street Journal reported Tuesday night that a Bear Stearns fund with about $900 million in mortgage investments is refusing to return investors' money. Shares of the investment bank fell 4 percent.

And American Home Mortgage Investment Corp. (up $0.41 to $1.45, Charts) said that lenders had cut off its access to credit and that it may have to liquidate its assets. After a big fall Tuesday, shares gained 38 percent.

Market breadth was negative and volume was heavy. Losers beat winners on the New York Stock Exchange by nine to seven on volume of 2.4 billion shares. Decliners topped advancers by three to two on volume of 3 billion shares on the Nasdaq.

Treasury prices fell, raising the yield on the benchmark 10-year note to 4.78 percent from 4.74 percent late Tuesday. Bond prices and yields move in opposite directions.

The dollar gained against the euro and was little changed versus the yen.

COMEX gold for December fell $3.40 to $675.90 an ounce.

Report: 3rd Bear Stearns fund in jeopardy

Hedge fund with $900 million in mortgage investments reportedly face huge losses, according to newspaper.

NEW YORK (CNNMoney.com) -- A Bear Stearns' hedge fund with about $900 million in mortgage investments is reportedly facing huge losses and is refusing to return investors' money, according to a news report published online Tuesday.

Revelations of the imperiled hedge fund comes weeks after the investment bank closed two hedge funds that suffered losses arising from the subprime-mortgage market.

The value of the Bear Stearns Asset-Backed Securities Fund has fallen amid a flurry of mortgage markdowns, the Wall Street Journal reported, sparking fears the bank will have to close the fund as it has done to two others.

Bear Stearns (Charts, Fortune 500) has delayed paying back investors' money in the hope that the values of the fund would rise again, a source told the Journal.

The asset-backed fund's value was up 5 percent from Jan.1 to the end of June, the source told the newspaper. The troubled fund reported holds a range of mortgages with only a sliver being of the subprime category, the Journal reported.

Subprime loans are loans made to borrowers with less-than-perfect credit. Such loans have been roiling markets, setting off fears of a credit crunch or market slowdown in recent weeks.

"There are no plans to shut down the fund," Bear Stearns spokesman Russell Sherman, told the Journal. "We believe the fund portfolio is well positioned to wait out the market uncertainty."

Countrywide profit plummets

No. 1 mortgage lender, hurt by surging homeowner defaults, slashes outlook.

NEW YORK (Reuters) -- Countrywide Financial Corp., the largest U.S. mortgage lender, Tuesday slashed its full-year earnings outlook and said quarterly profit slid 33 percent, hurt by rising homeowner defaults in as the U.S. housing market slumps.

Shares of Countrywide sank more than 7.2 percent on the New York Stock Exchange Tuesday morning.

Second-quarter net income for the Calabasas, California-based company fell to $485.1 million, or 81 cents per share, from $722.2 million, or $1.15, a year earlier. Revenue fell 15 percent to $2.55 billion.

Analysts on average expected profit of 93 cents per share on revenue of $2.9 billion, according to Reuters Estimates.

Countrywide (Charts, Fortune 500) also cuts its full-year earnings forecast to a range of $2.70 to $3.30 per share from the $3.50 to $4.30 it had forecast in April, and the $3.80 to $4.80 it had forecast in January. Analysts on average expected $3.65. Profit was $4.30 per share in 2006.

"We expect difficult housing and mortgage market conditions to persist" this year, Chief Executive Angelo Mozilo said in a statement.

"Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories," Mozilo added.

Countrywide, which competes against Wachovia (Charts, Fortune 500), Wells Fargo (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), set aside $292.9 million for credit losses, up nearly fivefold from $61.9 million a year earlier.

Countrywide shares fell $2.49 to $31.57 in pre-market trading. Through Monday, the shares had fallen 20 percent this year, compared with a 13 percent decline in the KBW Mortgage Finance Index.

Mortgage banking

Pretax profit from mortgage banking fell 49 percent to $319.6 million as revenue slid 18 percent, though earnings roughly tripled from the first quarter.

Results reflected a $388 million writedown in the value of "prime" home equity-backed loan assets on its balance sheet, and a $25 million writedown for subprime assets, largely because delinquencies and defaults are rising.

Fed looks to rein in 'liar loans'

Mortgage loan production rose 19 percent to $123.1 billion, of which just 4 percent was "subprime," Countrywide said.

The company has tightened its lending guidelines, and like many rivals has stopped making some of the more exotic subprime loans that have triggered greater-than-expected defaults.

In banking, pretax profit fell to $128.9 million from $324.6 million, as credit losses rose more than sixfold. Pretax profit also fell 31 percent in capital markets, while it rose 11 percent in insurance.

Dow sinks as earnings, housing sting

Benchmark index tumbles over 100 points a day after topping 14,000, its highest close ever; Google, Caterpillar, Ericsson all disappoint.

NEW YORK (CNNMoney.com) -- The Dow lost nearly 150 points Friday, a day after closing above 14,000 for the first time ever, as a spate of weak earnings news and continued housing fears rattled markets.

The Dow (down 149.33 to 13,851.08, Charts) sank over 1 percent, while the broader S&P 500 (down 18.98 to 1,534.10, Charts) and the tech-heavy Nasdaq (down 32.44 to 2,687.60, Charts) each fell about 1.2 percent.

The dollar hit a all-time low against the euro, bonds rallied and oil fell.

Coping with Dow 14,000

Despite the record-setting day Thursday, stocks still finished lower for the week. The Dow ended the week down 0.4 percent, while the S&P lost 1.1 percent and the Nasdaq declined 0.7 percent.

Next week investors will look forward to an advance reading on economic growth and numbers on the home sales. Both will be closely watched as economic growth has been slowing and real estate has deflated.

On the move

Stocks rallied Thursday, pushing the Dow, a blue-chip barometer that tracks 30 large companies, to its highest finish ever.

But a big miss from Dow component Caterpillar dashed hopes of another record- setting day Friday.

The heavy equipment maker said its net profit fell 21 percent and posted earnings of $1.24 a share, versus estimates for $1.49 a share. Caterpillar (down $3.78 to $83.20, Charts, Fortune 500) shares slid over 4 percent, although they were down over 9 percent earlier in the session.

Lackluster earnings in the tech sector also weighed on stocks.

Google (down $28.47 to $520.12, Charts, Fortune 500) reported earnings late Thursday that missed Wall Street's estimates even as its quarterly sales soared. The earnings miss - only the second since the Internet search firm went public in 2004 - rattled investors who have grown accustomed to solid results from the company. Google shares tumbled 5 percent.

Swedish firm Ericsson, the biggest maker of cell phone network equipment, also reported earnings that fell short of analysts' expectations early Friday. Ericsson (down $2.25 to $39.84, Charts) shares fell 5 percent.

"Google and Caterpillar have really taken the wind out of the sails," said Todd Clark, Director of stock trading at Nollenberger Capital Partners in San Francisco. "But this is just some healthy consolidation. The market really looked a little long in the tooth yesterday."

"Earnings are partly a factor, but they are not the whole thing," said Larry Peruzzi, a stock trader at The Boston Company Asset Management.

Peruzzi said the fact that the Dow hit the 14,000 mark Thursday, but just barely, was also giving investors pause.

"As the market gets up there, it acts as a reflection point," he said, noting that the Dow has often dropped after hitting other psychologically important benchmarks like 12,000 or 13,000.

Housing woes linger

Peruzzi said from comments Federal Reserve member William Poole that the subprime mortgage sector was large enough to affect the broader housing market also dampened the mood.

Defaults on mortgages in the subprime sector have risen sharply in the last few months, resulting in the implosion of several subprime mortgage lenders and funds that bought the repackaged debt.

Poole's comments follow those from Fed Chairman Ben Bernanke, who earlier this week told lawmakers that subprime losers could total $100 billion.

While so far limited, Bernanke said a housing slowdown had the potential to cut into consumer spending, hurting the broader economy. His comments helped stocks close lower Wednesday.