Stocks endure wild day on credit angst

NEW YORK (Reuters) - Blue-chip stocks slipped, while the broader market edged higher on Friday after the Federal Reserve injected cash to shore up the banking system and ease anxieties over looming losses related to subprime mortgages.

As in previous sessions during a week of wild swings, the market shifted direction dramatically in the last hour of trade, with the S&P 500 ending higher, while the Nasdaq and Dow finished well off their session lows.

In an effort to calm the market, the U.S. Federal Reserve added cash to the banking system three times -- $38 billion in all -- and issued a statement that it would provide sufficient funds to prevent disruptions. It was the first time it had made such assurances since the September 11 attacks six years ago.

"People want to see how deep are these mortgage losses and how many creditors are really affected," said Andrew Kanaly, chairman of Kanaly Trust Co., an investment advisory firm based in Houston, Texas. "Remember the old adage: Markets can discount good news and discount bad news, but can't discount what they don't know."

Investors worried that fallout from the subprime problems would make credit conditions tighter in the corporate and mortgage lending markets, and would impact profits and the economy.

Shares of industrial conglomerates were among the top drags on the Dow. Caterpillar Inc. declined 1.2 percent to $77.55.

The Dow Jones industrial average fell 31.14 points, or 0.23 percent, to end at 13,239.54. Earlier in the session, the Dow lost more than 200 points as it slid to a session low at 13,057.86.

But the Standard & Poor's 500 index inched up just 0.55 of a point, or 0.04 percent, to finish at 1,453.64. Earlier, the S&P 500 dropped to a session low at 1,429.74.

The Nasdaq Composite Index declined 11.60 points, or 0.45 percent, to close at 2,544.89. Earlier, the Nasdaq had fallen as low as 2,503.16.

On Thursday, stocks suffered their second-worst decline of the year, with the Dow ending off 387 points.

For the week, the Dow ended up 0.4 percent, the S&P rose 1.4 percent and the Nasdaq gained 1.3 percent.

THE FED'S CALMING TOUCH

The Fed's actions appeared somewhat successful as Wall Street's reaction paled in comparison to drops of 3 percent in the benchmark share indexes in London and Europe, as well as a 2 percent slide in Tokyo's Nikkei average. Japan's broad TOPIX index also slid 3 percent.

Besides the U.S. Federal Reserve's cash infusions, the European Central Bank, the Bank of Japan and the Bank of Canada also injected additional liquidity into financial systems to calm markets on Friday.

Shares of companies beaten down in the previous session were among Friday's gainers, including International Business Machines Corp., up 1.7 percent at $112.64.

Financials also rebounded after taking a beating, with Citigroup Inc. up 0.2 percent at $47 on the New York Stock Exchange. JP Morgan Chase & Co. also gained 0.2 percent, closing at $44.25 on the NYSE. Bank of America Corp. gained 0.5 percent to $48.59. Wells Fargo & Co. added 0.7 percent to $34.40.

COUNTRYWIDE'S CONFESSION

Shares of U.S. mortgage companies dropped, including Countrywide Financial Corp., the largest U.S. mortgage lender, down 2.8 percent at $27.86. Countrywide said in a regulatory filing that it was facing "unprecedented disruptions" in the market to buy and sell home loans and that the ultimate impact was unknown.

Washington Mutual Inc. , the largest U.S. savings and loan, said in a separate regulatory filing that market liquidity had "diminished significantly," and that it would be "adversely affected" while this persisted. Its stock lost 2.2 percent to $35.95 in Big Board trading.

Among other declining industrial shares, Honeywell International Inc. fell 1.4 percent to $56.01 on the NYSE and ranked among the biggest contributors to the Dow's decline.

On the Nasdaq, shares of chip maker Nvidia Corp dropped as it pointed to supply constraints. Its stock fell 4.6 percent to $43.99.

Trading was heavy on the NYSE, with about 2.53 billion shares changing hands, well above last year's estimated daily average of 1.84 billion, while on the Nasdaq, about 3.24 billion shares traded, well ahead of last year's daily average of 2.02 billion.

Thursday's total matched volume of 3.31 billion shares on the Nasdaq was the biggest ever in its history.

Declining stocks outnumbered advancing ones by a ratio of about 5 to 3 on the NYSE and by about 4 to 3 on the Nasdaq.

(Additional reporting by Kristina Cooke)