Wall Street Looks for Fed Direction

NEW YORK -- Wall Street groped for a direction Tuesday, fluctuating as investors waited to see what the Federal Reserve will do next to steady the markets and the economy.

Comments from policymakers and government officials tugged at a market looking for any evidence the Fed will cut rates. Stocks bounced around through most of the session as Wall Street looks to end a broadening credit crisis triggered by distressed subprime loans that threatens to hurt companies across the economy.

Traders at first liked comments from Senate Banking Committee Chairman Christopher Dodd that Fed Chairman Ben Bernanke isn't satisfied with Wall Street's response to his efforts to stabilize markets torn by anxiety about shrinking credit. Dodd, after a meeting with Bernanke and Treasury Secretary Henry Paulson, said policymakers plan to use "all tools available" to complete its mission.

But, a hawkish speech by Fed President Jeffrey Lacker erased most of the session's gains. He said policy must be guided by fundamentals, rather than market swings — a signal that a cut in the benchmark federal funds rate cut might not be among the tools the Fed plans to use.

The Fed has taken a number of steps to prop up the nation's financial institutions, including injecting more liquidity into the banking industry and cutting the discount rate. But many on Wall Street want the Fed to do more, including lowering the more important federal funds rate, and to do it soon.

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"There are two camps out there, one that thinks we need a rate cut and the other doesn't feel the economy has slowed enough to warrant one," said Janna Sampson, director of portfolio management at Oakbrook Investments. "I think which camp leads on each day, or even each hour, is what is leading to all this volatility. There's just too much uncertainty."

In early afternoon trading, the Dow Jones industrial average fell 1.47, or 0.01 percent, to 13,119.88.

Broader stock indicators were also higher. The Standard & Poor's 500 index was up 3.32, or 0.23 percent, at 1,448.87, and the Nasdaq composite index rose 12.03, or 0.49 percent, to 2,520.62. The Russell 2000 index of smaller companies added 2.55, or 0.32 percent, to 790.00.

Bonds continued their rallyo rally, with the yield on the benchmark 10-year Treasury note at 4.61 percent from 4.63 percent late Monday. Investors have bailed out of stocks due to recent volatility, and moved swiftly into safer investments like Treasuries.

The dollar mixed against other major currencies, while gold prices up.

Oil prices fell $1.75 to $69.47 on the New York Mercantile Exchange. Investors have been wary as Hurricane Dean picks up pace toward Mexico, where major oil companies like state-run Pemex Oil have already battened down oil rigs in the Gulf of Mexico.

The session for stocks followed the erratic pattern of Monday, when the Dow changed course several times and swung in a 200-point range before closing only slightly higher. Traders have been trying to find their footing following the Fed's decision to cut the discount rate on Friday.

The session was also hurt by further speculation that the global credit crunch is nowhere near over. Countrywide Financial Corp. was said to be a takeover target due to losses linked to distressed subprime mortgages. And, investors expected more layoffs after Capital One Financial Corp. said it was shuttering its GreenPoint Mortgage unit and slashing 1,900 jobs.

Capital One shares rose $2.04, or 3.1 percent, to $68.76; Countrywide spiked $1.79, or 9 percent, to $21.60.

With no major economic reports scheduled, investors pored over a number of earnings reports from retailers to gauge the health of consumer spending. However, most reports out were lackluster, and failed to give direction one way or another.

BJ's Wholesale Club Inc. reported second-quarter profit rose 37 percent to surpass projections, and its shares rose $1.11, or 3.6 percent, to $31.90.

Meanwhile, Target Corp. added 33 cents to $59.42 after it reported profit grew 13 percent. The discount retailer said profit rose almost 13 percent, but was cautious on the rest of the year.

Staples Inc., the largest U.S. office supplies retailer, reported a higher quarterly profit on Tuesday, matching Wall Street projections. However, it issued a cautious forecast for the rest of the year. The stock fell 52 cents, or 2.2 percent, to $22.79.

Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume came to 56.2 million shares.

Overseas, Britain's FTSE 100 fell 0.55 percent, Germany's DAX index shed 0.14 percent, and France's CAC-40 dropped 0.27 percent. In Asia, Japan's Nikkei stock average rose 1.07 percent. Hong Kong's Hang Seng Index rose 0.62 percent.

China's central bank said Tuesday it would raise its benchmark lending and deposit rates to curb inflation. The often-volatile Shanghai Composite Exchange rose 1.03 percent.

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