Stocks end flat as Fed stance questioned

By Jennifer Coogan

NEW YORK (Reuters) - U.S. stocks barely budged on Thursday as investors consolidated Wednesday's gains and second-guessed expectations that the Federal Reserve's next policy move will be an interest rate cut.

Motorola Inc. (MOT.N) added to the cautious mood on Wall Street after the mobile phone maker warned late on Wednesday of a quarterly loss.

As expected, the Fed left rates unchanged on Wednesday. But in an accompanying statement the central bank dropped previous language about possible rate increases, prompting expectations the rate may be cut and sending stocks surging. Still, the Fed said it remained cautious about inflation.

"The fog is clearing somewhat, and everyone is looking at the Fed statement and seeing perhaps it wasn't totally dovish," said Marc Pado, a San-Francisco-based U.S. market strategist for Cantor Fitzgerald & Co. "They opened the door to a rate move in both directions."

The Dow Jones industrial average .DJI gained 13.62 points, or 0.11 percent, to 12,461.14. The Standard & Poor's 500 Index .SPX fell 0.50 points, or 0.03 percent, to 1,434.54. The Nasdaq Composite Index .IXIC lost 4.18 points, or 0.17 percent, to 2,451.74.

Trading volume was tepid on the NYSE, with about 1.62 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq, about 1.92 billion shares traded, below last year's daily average of 2.02 billion.

As of Thursday's market close, the S&P 500 index had recovered about 80 percent of its drop since a period of sharp losses that began on February 27 with a sell-off triggered by a fall in Chinese stocks. Much of the recovery occurred from Monday to Wednesday.

On the New York Stock Exchange, Motorola shares registered their biggest daily percentage drop in more than two months, falling 6.6 percent to $17.50, after the company warned it would post a first-quarter loss. Motorola also said the full year's earnings and revenue would be worse than expected. Its stock sagged to as low as $17.45 -- its lowest level in nearly two years.

Weighing down the Nasdaq was software maker Intuit Inc. (INTU.O). The company said sales of its TurboTax tax preparation software rose just 1 percent from a year ago, sending its shares down 8.2 percent to $27.54.

On Nasdaq, Palm Inc.'s (PALM.O) shares slid 8.8 percent to $17.74 as hopes for a buyout for the handheld computer and cell phone maker faded on Motorola's news. After the closing bell, the device maker reported earnings, excluding items, that were higher than analysts' estimates, helping the stock recover some of its loss.

Palm shares were up 1.1 percent at $17.93 in electronic composite trading.

Oil stocks gained as U.S. crude for May delivery rose 3.5 percent to $61.71 a barrel CLc1. U.S. gasoline inventory data raised worries about tight supplies before the busy summer driving season. Shares of Exxon Mobil (XOM.N) rose 1.5 percent to $74.36 on the NYSE. The stock was the biggest advancer on both the Dow and the S&P 500.

The subprime mortgage market turmoil was back on investors' radar. Countrywide Financial Corp. CFC.N, the top U.S. mortgage lender, said subprime defaults for 2006 loans may exceed the company's worst single origination year.

Countrywide shares were down 1.5 percent to $36.38 on the NYSE. Shares of Wells Fargo & Co. (WFC.N), another major U.S. mortgage lender, fell 1.4 percent to $34.99 and Washington Mutual Inc. WM.N stock lost 2 percent to $42.06.

Advancing stocks nearly matched declining ones on the NYSE. On the Nasdaq, gainers outnumbered losers by a slight 11-to-10 ratio.