Dow shakes off loss
NEW YORK (Reuters) - Stocks clawed their way back from steep losses on Wednesday that were triggered by Merrill Lynch announcing its first loss in nearly five years, on speculation that the Federal Reserve would cut the discount rate.
Earlier in the session, Merrill's loss, grim housing data and poor results from the semiconductor sector had sent the S&P 500 to its lowest since September 18, the day the Fed last cut interest rates.
A Fed spokesman declined to comment on the market speculation. The Fed's rate-setting arm is next scheduled to meet on October 30-31.
"There's been a lot of rumors about the Fed possibly lowering the discount rate, an emergency meeting or even lowering the fed funds rate," said Neil Massa, senior U.S. trader at MFC Global Investment Management, in Boston. "But the Fed's in a quiet period, so that's very unlikely. But that's what turned the market."
The Dow Jones industrial average was down just 0.98 of a point, or 0.01 percent, at 13,675.25. The Standard & Poor's 500 Index was down 3.71 points, or 0.24 percent, at 1,515.88. The Nasdaq Composite Index was down 24.50 points, or 0.88 percent, at 2,774.76.
At their lows of the day, the Dow was down more than 200 points and the Nasdaq lost 78 points.
Merrill, the world's largest brokerage, reported a $2.3 billion loss and eye-popping write-downs of $7.9 billion for bad bets on mortgages and leveraged loans. Standard & Poor's cut Merrill's credit rating, helping to send the stock down to $61.40, its lowest since October 2005.
Shares of Merrill sank 5.8 percent to close at $63.22 on the New York Stock Exchange.
In a conference call with analysts, Merrill's executives said further challenges could disrupt credit markets.
In another sign that the worst of the mortgage-related credit crisis may not be over, the National Association of Realtors' report showed sales of previously owned homes fell in September to a record low.
The Nasdaq was down more than 2 percent for most of the session as the semiconductor sector suffered its worst drop in three years on a pair of disappointing earnings reports and Amazon.com Inc reported a profit that failed to dazzle Wall Street.
Amazon's stock declined 12 percent to $88.73 and posted the biggest daily percentage drop in 15 months.
Chip maker Broadcom Corp said earnings would continue to be weighed down as it spends heavily on research and development. Its stock fell 17 percent to $34.92.
Altera Corp, also a chip maker, reported profit that missed Wall Street's estimates, triggering a string of price-target downgrades.
Altera's stock slid 15.7 percent to $19.66 on the Nasdaq.
The Philadelphia Stock Exchange index of semiconductors ended down 3.5 percent. Before talk of a Fed rate cut swept the market, the index was down more than 5 percent, its biggest plunge since 2003.
Trading was moderate on the NYSE, with about 1.59 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on the Nasdaq, about 2.78 billion shares traded, ahead of last year's daily average of 2.02 billion.
Declining stocks outnumbered advancing ones by a ratio of about 5 to 3 on the NYSE and about 2 to 1 on Nasdaq.
(Additional reporting by Kristina Cooke)
