(Updates to early afternoon)
By Kristina Cooke
NEW YORK, Dec 12 (Reuters) - U.S. stocks rose on Wednesday
after the Federal Reserve said it is linking up with other
central banks to ease global credit market strains through
increased short-term lending.
The move by the Fed sparked a broad rally, but in afternoon
trading major indexes retreated from their highs as the initial
euphoria faded.
Analysts said investors remained jittery about the prospect
of more mortgage losses, causing shares of financial services
companies to reverse course.
Two large banks warned of write-downs and loan losses in
the fourth quarter, including Bank of America <BAC.N>, the No.
2 U.S. bank, whose shares fell 2.5 percent.
There was also lingering disappointment over the Fed's
quarter-percentage-point cut in interest rates on Tuesday that
many on Wall Street thought was not aggressive enough to help
stave off a recession and loosen lending conditions.
"Clearly the Fed statement this morning about liquidity from
different avenues sparked a big move in the market early, but
there is still underlying disappointment with the Fed's rate
cut yesterday," said Michael James, senior trader at regional
investment bank Wedbush Morgan in Los Angeles.
The Dow Jones industrial average <.DJI> was up 88.11
points, or 0.66 percent, at 13,520.88. The Standard & Poor's
500 Index <.SPX> was up 12.62 points, or 0.85 percent, at
1,490.27. The Nasdaq Composite Index <.IXIC> was up 28.86
points, or 1.09 percent, at 2,681.21.
Earlier, the Dow had been up more than 270 points.
The Fed said it would launch a temporary auction facility
that banks can use to secure loans at its discount window. For
details, see [ID:nL1290916].
Home builders rebounded on the central banks' action.
Centex Corp <CTX.N>, the No. 4 U.S. home builder, was up 3.6
percent at $23.80. The Dow Jones home construction index
<.DJUSHB> was up 1.6 percent, having initially jumped more than
4 percent.
Shares of 3M Co <MMM.N>, the maker of products as Scotch
tape, jumped after it said it expects double-digit sales and
earnings growth in 2008 and forecast profit slightly above the
average Wall Street estimate. 3M rose 3.1 percent to $87.30,
and was the top boost to the Dow.
Energy shares were also helping to lift the market as crude
oil rose more than 3 percent. Exxon Mobil's <XOM.N> shares rose
2.8 percent to $92.84.
Citigroup <C.N> led financials lower. Morgan Stanley said
the largest U.S. bank was its top 'short' idea for 2008. Short
sellers bet stocks will fall. Citigroup dropped 4.9 percent to
$31.68.
Bank of America shares fell 3.6 percent to $43.06 after the
company's chief executive, Ken Lewis, said the bank expects
fourth-quarter results to be disappointing because of
writedowns and lower trading revenue.
Shares of Wachovia Corp <WB.N> were down 3.8 percent at
$40.36 after the bank said it sees a loan loss provision for
the fourth quarter of about $1 billion, nearly double a
previous estimate.
Another laggard among financials was student lender SLM
Corp, <SLM.N>, which cut its earnings forecast for 2008. Shares
of the company, also known as Sallie Mae, slid 10.4 percent to $28.61 on the NYSE.
(Editing by Kenneth Barry)
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Keywords: MARKETS STOCKS