Stocks Turn Mixed

Earlier gains faded as the government's $700 billion financial rescue package ran into resistance in Congress

Major U.S. stock indexes revered earlier gains to trade mixed Tuesday afternoon, one day after a broad sell-off. The market's focus on Tuesday: The Senate Banking Committee's hearing on the Bush administration's $700 billion financial rescue plan, featuring testimony from Treasury Secretary Henry Paulson, Federal Reserve Chairman Chairman Ben Bernanke, and Securities and Exchange Commission Chairman Christopher Cox.

On Tuesday around 3:05 p.m. ET, the blue-chip Dow Jones industrial average declined 10.99 points, or 0.1%, to 11,004.70, weighed down by a drop in General Electric (GE). The broader S&P 500 index edged lower by 0.38 points, or 0.03%, to 1,206.71. The tech-heavy Nasdaq composite index added 7.37 points, or 0.34%, to 2,186.53 as Google (GOOG) and other tech stocks eked out gains.

On the New York Stock Exchange, 20 stocks were lower in price for every 11 that posted gains, The ratio on the Nasdaq was 16-11 negative. GOOG and other tech stocks eked out gains while a drop in GE hurt the DJIA.

Bonds were mixed. The dollar index edged higher. Gold and oil futures closed lower.

Initial stock-market gains gave way to nervousness Tuesday after Paulson's plan ran into much second-guessing from lawmakers.

Chairman Bernanke made a strong emotional case for addressing the financial sector problems, reports Action Economics. He painted a bleak picture for the U.S. economy if the Treasury's plan is not effected quickly. The markets are not serving the necessary functions of the economy, he noted, and if liquidity isn't restored, more jobs will be lost, the unemployment rate will rise, the housing market will see more foreclosures, and GDP will contract.

Bernanke also explained that the $700 billion price tag for the rescue plan is not an expenditure of that size, but a purchase of assets, and he believes most, if not all the value could be recovered, and taxpayers will get 'good value" for the money spent.

"This was the most forceful we've seen the Fed chief in Congressional testimony," wrote Action Economics analysts in a website posting Tuesday.

Treasury Secretary Paulson also made a strong case for the TARP plan, repots Action Economics. noting that until the housing sector stabilizes, there is no way for the financial system to recover. He expressed anger and shock about the situation, but the main problem when he took over was the flawed regulatory system which was structured for another era. Paulson noted that thousands of banking institutions may participate in the bailout, including foreign banks. He is arguing for flexibility in the Treasury's approach to these reverse auctions, though Congress is balking at just that sort of 'blank check."

Paulson also did not favor a plan to enact the $700 billion financial system rescue in phases proposed by Sen. Charles Schumer (D-N.Y.), saying a return of confidence was needed in the financial sector.

Paulson said he did not know if U.S. credit rating would be hurt by the measure. He also said the rescue plan will not put the taxpayer on the hook because "they're already on the hook."

In his prepared remarks, Bernanke said that financial markets are under severe stress and urged immediate action to buy up hundreds of billions of dollars worth of tainted mortgage assets. "Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," Bernanke said in prepared remarks.

"Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," he said. "In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.

Amid rising concerns that the plan givesgovernment a blank check, Democrats want an oversight board that would include the chairmen of the Fed, FDIC, and SEC to limit the Treasury's powers.

Both Barrack Obama and John McCain say more oversight of the Treasury is needed. Reports some Republicans oppose the plan Treasury Secretary Paulson laid out. President Bush will discuss the financial crisis at a UN General Assembly meeting in New York today.

Financial stocks remained in the spotlight Tuesday. The Wall Street Journal reported that Toronto-Dominion Bank (TD) is is among the companies now weighing a bid for Seattle thrift Washington Mutual (WM), according to people familiar with the situation. In addition to Toronto-Dominion, potential suitors include Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and Banco Santander (STD), according to people familiar with the situation.

Citigroup named Mike Corbat as CEO of its Global Wealth Management unit (GWM) and Edward Kelly as Head of Global Banking for the Institutional Clients Group (ICG). The company also confirmed that Sallie Krawcheck has decided to leave the firm to pursue other opportunities and will remain as Chairman of GWM through the end of the year.

Oppenheimer analyst Meredith Whitney cut her earnings estimates on Wachovia Corp. (WB), Citigroup, Bank of America (BAC), and Wells Fargo.

November West Texas Intermediate crude oil futures were off $2.32 to $107.05 per barrel Tuesday afternoon on profit taking from Monday's short squeeze that drove the expiring October contract $25 higher. The Commodities Futures Trading Commission is investigating Monday's trading. Tuesday's selling is blamed by some as fear the global economy will fall into a recession for several reasons, including the U.S. financial crisis that is spreading. Some speculators bought yesterday on the argument the Bush administration's $700 billion rescue plan would bolster the U.S. economy and increase demand for commodities. Some believe a slowdown could drive commodities higher on safe haven buying.

December gold futures fell Tuesday on profit taking from Monday's flight to safety surge. But the yellow metal could see more buying due to the uncertainties surrounding the U.S. government's bailout plans and the impact on the real economy, which are weighing on the equity markets, notes S&P MarketScope.

Among Tuesday's stocks in the news, Bristol-Myers Squibb (BMY) increased its offer to buy ImClone Systems (IMCL) to $62 a share from its initial offer of $60 a share. Bristol-Myers intends to commence a tender offer, valued at about $4.7 billion, for all outstanding ImCLone shares it does not already own.

Merrill Lynch reportedly downgraded shares of General Electric Co. (GE) to neutral from buy.

Circuit City Stores (CC) expects to deliver second quarter results that are slightly better than the previously provided range of a loss from continuing operations before income taxes of $170-$185 million, before any unusual/non-cash charges. The company also said Philip J. Schoonover, chairman, president and CEO, has agreed to step down from those positions, effective immediately. Schoonover has also resigned as a director.

3Com Corp. (COMS) posted first-quarter non-GAAP earnings per share of 11 cents, vs. 3 cents one year earlier, on a 7% revenue rise.

Union Pacific (UNP) raised its $1.10-$1.20 third quarter EPS view to $1.28-$1.33. The company said lower diesel fuel costs and strong operating efficiency will more than offset the impact of recent hurricanes and lower shipment volumes. The company noted that widespread commercial power outages associated with Hurricane Ike have impacted its operations and limited the ability of its customers to resume production. Union Pacific's new EPS view includes a reduction of about 10 cents as a result of the hurricanes, primarily Ike.

Dollar Thrifty Automotive Group (DTG) announced that results in the third quarter continue to be affected by challenges in the areas of revenue per day and vehicle depreciation costs. The company said results are also expected to be affected by the bankruptcy of one of its tour operators. In light of performance to date, Dollar Thrifty said it's seeking an amendment to its senior secured credit facility.

DuPont (DD) named Ellen J. Kullman president and a director of the company effective Oct. 1 and CEO effective Jan. 1, 2009. DuPont says Charles O. Holliday, Jr., chairman & CEO, will serve as chairman of the company and as a member of the board until Kullman's expected succession as chairman.

European stock indexes finished solidly lower Tuesday. In London, the FTSE 100 index fell 1.91% to 5,136.12. In Paris, the CAC 40 index dropped 1.98% to 4,139.82. Germany's DAX index shed 0.64% to 6,068.53.

Japanese markets were closed for a holiday Tuesday. In Honmg Kong, the Hang Seng index plunged 3.87% to 18,872.85.

Treasury market

On Tuesday, the 10-year note was higher at 101-15/32 for a yield of 3.824%, while the 30-year bond rose to 101-13/32 for a yield of 4.418% amid worries the Treasury's financial system rescue plan will be delayed by congressional wrangling over details.