Wall Street pares losses on as oil declines

Wednesday August 6, 12:31 pm ET By Tim Paradis, AP Business Writer
Stocks pare declines as drop in oil offsets unease over wider-than-expected Freddie Mac loss
NEW YORK (AP) -- Stocks pared early losses and traded narrowly mixed Wednesday as a drop in oil prices helped corral fresh worries about the financial sector.
Investors began the day fearing more industrywide write-downs of bad home loans after mortgage financier Freddie Mac reported a larger-than-expected second-quarter loss. But a reversal in oil prices, continuing a decline that propelled stocks sharply higher Tuesday, helped calm investors about the forces tugging at the economy.
Freddie Mac, which substantially increased its reserves for souring loans, lost about three times what Wall Street expected on a per-share basis. The company also announced that it expects to cut its third-quarter dividend as it seeks to preserve capital.
The well-being of Freddie Mac and sister company Fannie Mae is a big concern on Wall Street as the government-chartered companies hold or back nearly half of all U.S. mortgage debt. The companies have lost billions of dollars due to failed loans over the past year; the federal government has pledged to help both companies with larger lines of credit or stock purchases if necessary.
The problems at both companies have contributed to the volatility on Wall Street in recent months. But trading appeared orderly Wednesday, a day after the Dow Jones industrial average soared more than 330 points on a reassuring economic statement from the Federal Reserve and another drop in oil prices. Some retrenchment after such steep gains wasn't unexpected.
Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, said that while the troubles in the financial sector aren't over, investors are somewhat emboldened by the fall in oil and signs of strength in the dollar.
"I think we're getting into better territory. I've been very much focused on the fall in oil prices as a necessary ingredient to avoid recession. To the extent that we're getting that that's just great," he said.
Oil extended its slide into a third day. Light, sweet crude fell 87 cents to $118.30 on the New York Mercantile Exchange after the government reported a jump in domestic inventories; oil is now down about $30 from its record high of $147.27 reached on July 11.
In midday trading, the Dow fell 25.24, or 0.22 percent, to 11,590.53, after having been down nearly 100 points in the early going.
Broader stock indicators traded mixed. The Standard & Poor's 500 index fell 2.68, or 0.21 percent, to 1,282.20, and the Nasdaq composite index rose 11.20, or 0.48 percent, to 2,361.03.
Bonds fell as investors left the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.07 percent from 4.02 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell.
Following its report, Freddie Mac fell 93 cents, or 12 percent, to $7.11, while Fannie Mae fell $1.09, or 8 percent, to $12.51.
Other financial stocks fell as investors worried about the balance sheets of financial companies and the effects of souring mortgage debt. Wells Fargo & Co. fell 68 cents, or 2.2 percent, to $30.52, while Wachovia Corp. fell 42 cents, or 2.2 percent, $18.64.
In other earnings news, Time Warner Inc. said second-quarter profits fell 26 percent on declining subscriber fees at its AOL online unit and lower ad revenue at the Time publishing business. Time Warner rose 1 cent to $14.89.
Sprint Nextel declined 85 cents, or 9.9 percent, to $7.70 after posting a second-quarter loss on severance and other costs.
Qwest Communications International Inc. said earnings fell 24 percent in the second quarter. The stock fell 13 cents, or 3.6 percent, to $3.46.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 502.8 million shares.
The Russell 2000 index of smaller companies fell 1.62, or 0.22 percent, to 719.42.
Overseas, Japan's Nikkei stock average rose 2.63 percent. Britain's FTSE 100 rose 0.58 percent, Germany's DAX index added 0.65 percent and France's CAC-40 jumped 1.41 percent.
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