Stocks Manage to Stabilize, Indexes Fluctuate as Dollar Falls Against Yen

(AP) Wall Street managed to stabilize itself Monday, although investors remained nervous about mortgage defaults, a strengthening yen and tumbling stock markets abroad.

The major indexes fluctuated as investors tried to size up where the market was headed, and as traders swooped in to take advantage of stocks left severely depressed by last week's big decline.

"Probably it's better to save any judgment on this market today until the last half hour," said Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher in Minneapolis, noting that little has changed in terms of economic fundamentals, but that the market is still very volatile.

Concerns about losses over soured subprime loans _ loans to customers with poor credit ratings _ were one of the many factors behind Wall Street's selloff. Those worries were rekindled Monday when HSBC Holdings PLC, Europe's largest bank, said its 2006 earnings rose 5 percent but that it suffered $10.6 billion on losses on bad loans from its U.S. subprime mortgage operations.

A rising yen added to worries about an erosion in the yen carry trade, which refers to the process of borrowing the low-yielding yen to acquire assets in other currencies with greater yields. A slowdown could hurt liquidity worldwide. By midday, the U.S. dollar was below 116 yen, trading near three-month lows having fallen from above 120 yen less than a week ago.

The Institute for Supply Management's report on the services sector failed to give the market much confidence. The index registered at 54.3 for February, lower than analysts' forecast of 57.5 and January's reading of 59.0. Still, the reading above 50 indicates that U.S. service industries are still growing, albeit at a modest pace.

In midday trading, the Dow Jones industrial average was up 3.04, or 0.03 percent, at 12,117.14, having swung 75 points lower and 75 higher.

Broader stock indicators were lower. The Standard & Poor's 500 index was down 4.14, or 0.30 percent, at 1,383.03, and the Nasdaq composite index fell 10.46, or 0.44 percent, to 2,357.54.

Bonds fell slightly, with the yield on the benchmark 10-year Treasury note at 4.51 percent, up from 4.50 percent late Friday. The dollar was higher against other major currencies except for the yen. Gold, though traditionally a safe-haven investment, continued to slide.

Oil prices dropped sharply, losing $1.84 to trade at $59.80 a barrel on the New York Mercentile Exchange due to concerns about the world economy.

Stock investors appeared to have been somewhat consoled by comments attributed to U.S. Treasury Secretary Henry Paulson by Japan's finance minister, Koji Omi. Neither Omi nor Paulson, who began a three-nation Asian tour in Tokyo on Monday, were concerned by the swings in regional stock markets, Omi told reporters in Tokyo. Both men contend the market mechanism was functioning well, Omi said.

Still, Asian and European stocks left U.S. investors nervous. The Nikkei fell for the fifth straight session to close down 3.3 percent, Hong Kong's Hang Seng index fell 4 percent and the Shanghai Composite Index, which has proven volatile in recent weeks, fell 1.6 percent.

In Europe, Britain's FTSE 100 was down 0.94 percent, Germany's DAX index was down 1.04 percent, and France's CAC-40 was down 0.73 percent.

The Russell 2000 index of smaller companies was down 7.54, or 0.07 percent, at 767.90.

Market participants are bracing for a rocky week, especially as investors await the Labor Department's jobs data, which will be released on Friday. So far, economic data has been coming in mixed, suggesting a slowing growth but not recession.

"We saw the ISM come in lower than expected, but the economy is slowing, and that's fine," said Scott Wren, senior equity strategist for A.G. Edwards & Sons. The ISM said the service sector, which represents about 80 percent of the nation's economic activity, saw nine of its industries grow and nine contract.

Investors were also watching for clues to the economy's health in speeches Monday by Federal Reserve officials. St. Louis Fed President William Poole, a voting member of the interest rate-setting Federal Open Market Committee, echoed recent statements by Fed Chairman Ben Bernanke Monday, saying that the outlook for the economy is not as bad as the market's recent downturn suggests.

Though the markets have been tumbling, market watchers note that merger and acquisition activity is still strong _ a positive sign for stocks.

Pathmark Stores Inc. rose $1.20, or 10.7 percent, to $12.45 after A&P supermarket operator Great Atlantic & Pacific Tea Co. agreed to buy Pathmark for $1.3 billion in cash and stock. In a somewhat unusual occurence for a company making an acqusition, investors bid Great Atlantic & Pacific higher; the stock was up $1.02, or 3.3 percent, at $31.88.

The subprime mortgage sector, already dragged down by concerns that too many people are defaulting, was kicked down further when New Century Financial Corp., the second-largest subprime lender, said late Friday that a federal prosecutor and the New York Stock Exchange are conducting investigations into movements in the company's stock price. New Century fell $8.80, or 60 percent, to $5.85.

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