Dow up 36 as Fed moves cheer traders

By Charley Blaine and Elizabeth Strott

Stocks finished mostly higher today, with the Dow Jones industrials and the Standard & Poor's 500 Index enjoying their first three-day rallies since the end of August and early September.

The Dow was up 36 points to 8,480, its first three-day gain since Aug. 26-28. The S&P 500 was up 6 points to 857, its first three-day gain since Sept. 10-12.

But technology stocks dragged the Nasdaq Composite Index lower after big gains on Friday and Monday. Techs were hurt by weak guidance from Hewlett-Packard (HPQ, news, msgs) and Cisco Systems' (CSCO, news, msgs) decision to shut its North American operations for five days at the end of the year to save $1 billion.

HP was down 5.9% to $33.60, the weakest performer among the 30 Dow stocks. Cisco was down 6% to $15.39.

Google (GOOG, news, msgs), however, had a big rally, jumping 9.6% to $282.05 on news that its market share of the Internet search business is growing.

The market struggled during the day with waves of profit-taking; the Dow was down as much as 135 points and up as much as 164 points. That is probably not surprising after big rallies Friday and Monday pushed the major indexes up more than 12%. At the same time, new data on the economy suggested the recession will be deeper than thought.

Crude oil fell 6.8% to $50.77 after surging Monday. Energy stocks, however, were higher.

Chevron (CVX, news, msgs) was up 3% to $76.53; Schlumberger (SLB, news, msgs) added 0.7% to $46.70. Airline stocks were higher, too. And so were airline stocks.

Sixteen of the 30 Dow stocks were higher today, along with 294 S&P 500 stocks. Only 38 stocks in the Nasdaq-100 Index ($NDX.X) had gains.

In Europe, stocks were modestly higher. London's FTSE 100 Index was up 0.4%, and the Paris CAC 40 Index was up 1.2%.

Asian stocks jumped in the overnight session. Japan's Nikkei 225 Index was up 5.2%, the Hong Kong Hang Seng Index gained 4%, and the MSCI Asia Pacific Index rose 3.7%.

Markets will be open for a full day of trading on Wednesday. They will close for Thanksgiving and reopen for a short day on Friday.

Futures trading suggest that stocks will open flat on Wednesday. Farm equipment maker Deere (DE, news, msgs) and luxury retailer Tiffany (TIF, news, msgs) will report quarterly profits. The Commerce Department will report on new-home sales, personal income and spending and initial jobless claims.

Feds move to boost consumer credit

The market gained some strength by positive reaction to two new government initiatives to ease strains in consumer credit markets.

The most important was a Federal Reserve announcement that it will buy up to $100 billion in debt issued by Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) through auctions that will start next week. The Fed will also purchase up to $500 billion in mortgage-backed securities backed by Fannie Mae and Freddie Mac, with the goal of starting that program by the end of the year.

The initiative was pretty well received. Spreads between yields on Fannie Mae and Freddie Mac and Treasury notes narrowed quickly.

"We expect this action will measurably improve conditions in the mortgage markets and will have beneficial effects on housing and the broader economy," JPMorgan Chase economist Michael Feroli told The Wall Street Journal.

At the same time, the Fed and the Treasury Department announced new efforts to try to ease strains in the consumer credit markets. The Fed said its new Term Asset-Backed Securities Loan Facility (TALF) will lend up to $200 billion to institutions involved in the issuance of consumer and small-business debt such as credit card loans, student debt and auto loans.

The plan essentially puts the federal government in the role of financing consumer and small-business loans. While the government won't make such loans directly, it will indirectly support the loans by buying up asset-backed securities issued by the institutions doing the lending.

• Read the Fed's statement

The news pushed many financial stocks higher, including JPMorgan Chase (JPM, news, msgs), up 7.9 % to $29.77. Citigroup (C, news, msgs) was up 2.2% to $6.08, a day after the government agreed to shore up the banking giant's financial position.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$50.77	$54.50	-$3.73	-25.13%	-47.10%
Heating oil (per gallon)	$1.6988	$1.7844	-$0.0856	-15.33%	-35.88%
Natural gas (per million BTU)	$6.3860	$6.8880	-$0.5020	-5.85%	-14.66%
Unleaded gasoline (per gallon)	$1.0949	$1.1425	-$0.0476	-24.03%	-56.04%

Google bucks weak day in techs

In addition to HP and Cisco Systems, tech shares were lower on weakness in key stocks such as Apple (AAPL, news, msgs), Microsoft (MSFT, news, msgs), and Research In Motion (RIMM, news, msgs) all lower. (Microsoft is the publisher of MSN Money.)

But Google rebounded today thanks to the new data showed the Internet search leader is becoming even more dominant in the most lucrative part of the online advertising market.

Internet research firms comScore and Nielsen Online both said the volume of search requests at Google has climbed substantially over the past year, while rivals Yahoo (YHOO, news, msgs) and Microsoft are losing market share.

The statistics, based on October search activity, bodes well for Google's fourth-quarter revenue because Google makes most of its money by showing ads alongside search results. Fielding more search inquiries generally gives Google more opportunities to show ads and pocket a commission.

Yahoo was down 1.4% to $10.07; Microsoft fell 3.4% to $19.99.

Google's gain contributed 4 points to the Nasdaq-100 Index.

Consumer confidence jumps; home prices sink

Investors took some cheer from an unexpectedly optimistic report on consumer confidence this morning.

The Conference Board's report on consumer confidence for November came in at a reading of 44.9, up from a reading of 38 in October and better than economists' expectations of a reading of 39.

"Inflation expectations, which have been at historically high levels in recent months, subsided considerably as a result of falling gas prices," Lynn Franco, director of the Conference Board's Consumer Research Center, said in the report.

But there was some glum news today from the S&P/Case-Shiller 20-city index of home prices, which showed a 1.8% decline in October from September and a 17.4% plunge from October of last year.

"The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals," David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement.

Home-building stocks were actually higher despite the Case-Shiller news. D.R. Horton (DHI, news, msgs) shares jumped 38% despite reporting an $800-million loss, or $2.53 a share, in the fiscal-fourth quarter. The reason was hope that the Fed's new plan to buy mortgage securities from Fannie Mae and Freddie Mac would cut mortgage rates and promote new buying. The rate on a 30-year mortgage was at 5.98% today, Bankrate.com said.

Meanwhile, the U.S. gross domestic product for the third quarter was revised down to negative 0.5%, the Commerce Department said today, from an initial reading of negative 0.3%. The revision was in line with economists' expectations, but economists are looking for growth to fall at a 4% pace in the fourth quarter.

Consumer spending declined 3.7% in the third quarter, revised from a 3.1% decline -- the first drop in consumer spending in 17 years and the largest in 28 years.

The Commerce Department had some worrisome news for corporations this morning. Before-tax profits from current production fell 9% over the past year, the slowest annual rate since the third quarter of 2001.

Profits fell 0.9% in the third quarter to an annualized $1.52 trillion.

Mining deal scrapped

Mining company BHP Billiton (BHP, news, msgs) this morning withdrew its $68 billion hostile takeover for rival Rio Tinto (RTP, news, msgs).

The deal, originally valued at $147 billion, would have been one of the biggest mergers ever, but both companies' stocks have plummeted amid the global market meltdown.

BHP first proposed an offer to Rio Tinto in November 2007. The deal made sense until the market for commodities collapsed in early fall. The price of aluminum, for example, is now on track for its worst annual decline in 17 years.

"The withdrawal of the bid paints a very gloomy picture," Charles Cooper, analyst at Evolution Securities, wrote in a report. "The outlook for commodities is set to remain weak, inventories will build and prices will fall, adversely affecting company earnings and valuations."

Shares of Rio Tinto plunged 27.3% to $106.09 on the news; BHP shares were up 14.5% to $38.27.

'Challenging' time for HP

Hewlett-Packard shares fell today after the company late Monday reaffirmed its fiscal-first-quarter earnings forecast -- but offered a cautious note from its CEO.

"It will be a challenging environment, and we're planning on such," Chief Executive Officer Mark Hurd said on a conference call with reporters. "We can only control the things we can control, which (are) our cost structure and the competitiveness of our products."

Hewlett-Packard said it expects earnings excluding items to be between 93 cents and 95 cents per share, with revenue between $32 billion and $32.5 billion. The company also said fiscal-fourth-quarter net earnings came in at $2.1 billion, down slightly from the $2.16 billion HP earned in the same quarter last year. Excluding items, HP earned $1.03 per share for the quarter.

Revenue for the most recent quarter rose 19% to $33.6 billion.

One analyst was also concerned about HP's future. The company's "business momentum is clearly turning negative," Calyon Securities analyst Shelby Seyrafi wrote in a note this morning.

Retailers post weak results

A day ahead of the government's October report on consumer spending, several retailers are posting their quarterly results.

Teen retailer American Eagle Outfitters (AEO, news, msgs) reported a 57% plunge in third-quarter profit. The company earned $42.6 million, or 21 cents per share, down from the $99.4 million, or 45 cents per share, in the same period a year ago.

Excluding a charge, results were in line with analysts' expectations of 30 cents per share.

Shares rose 8.5% to $9.06 today.

Chico's FAS (CHS, news, msgs) posted a whopping 92% plunge in third-quarter profit this morning. The company earned $2 million, or a penny per share, down from $24 million, or 13 cents per share, in the same quarter a year ago.

Results topped the expected loss of 2 cents per share. Chico's shares were down 9.8% to $2.58 this afternoon.

J. Crew (JCG, news, msgs) was expected to report third-quarter earnings of 28 cents per share.

Economists expect consumer spending to decline by 1% in October, as consumers held onto their wallets amid the market turmoil last month.

This holiday shopping season -- which unofficially starts on Black Friday, the day after Thanksgiving -- is expected to be the worst in years.

"The most recent consumer spending data from MasterCard Advisors confirms investor fears that the declining consumer trends have yet to stabilize, and that the (fourth-quarter) holiday shopping season will be extremely challenging for retailers, including e-commerce players Amazon.com (AMZN, news, msgs) and eBay (EBAY, news, msgs)," Bank of America Securities analyst Brian Pitz wrote in a note to clients Monday.

The fourth quarter could show the first decline ever for e-commerce, Pitz said.

Starbucks sees more weakness next year

Starbucks (SBUX, news, msgs) shares were down 2.8% to $8.21 today after the company offered a grim outlook for 2009. The coffee retailer said late Monday it expects negative sales growth at stores open at least one year in fiscal 2009.

"As the global financial crisis has broadened and intensified, other sectors of the global economy have been adversely impacted and a severe global recession of uncertain length now appears likely," the company said in a statement. "As a retailer that is dependent upon consumer discretionary spending, the company expects to face an extremely challenging fiscal 2009 because of these economic conditions."

Starbucks closed 205 stores in fiscal 2008 in an effort to cut costs, with plans to cut a total of 600 stores by the end of fiscal 2009.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.100%	0.010%	0.090	-77.01%	-96.82%
5-year Treasury note yield	2.004%	2.205%	-0.201	-28.96%	-42.00%
10-year Treasury note yield	3.092%	3.340%	-0.248	-22.12%	-23.37%
30-year Treasury bond yield	3.632%	3.755%	-0.123	-16.87%	-18.55%
Currencies
U.S. Dollar Index	85.060	86.280	-1.220	-1.49%	10.91%
British pound in dollars	$1.5466	$1.5193	0.0273	-3.87%	-22.25%
Dollar in British pounds	£0.6466	£0.6582	-0.0116	4.02%	28.63%
Euro in dollars	$1.3067	$1.2957	0.0110	2.50%	-10.60%
Dollar in euros	€ 0.7653	€ 0.7718	-0.0065	-2.43%	11.85%
Dollar in yen	95.14	97.06	-1.92	-3.53%	-14.94%
Canadian dollar in U.S. dollars	$0.816	$0.813	$0.0036	-1.34%	-17.79%
U.S. dollar in Canadian dollars	$1.226	$1.230	-$0.0047	1.37%	21.64%
Commodities
Gold	$820.50	$820.40	$0.10	14.24%	-2.09%
Copper	$1.6540	$1.6715	-$0.02	-9.57%	-45.61%
Silver	$10.3050	$10.3780	-$0.07	5.91%	-30.93%
Corn	$3.5350	$3.5450	-$0.01	-11.96%	-22.39%
Crude oil (NYMEX) (per barrel)	$50.77	$54.50	-$3.73	-25.13%	-47.10%