Stocks End Mixed After Busy Day

Bernanke indicated more rate cuts could be on the way, while regulators said they would lift portfolio restrictions for Fannie and Freddie

by Ben Steverman

Stocks ended mixed Wednesday after a busy trading session. In the morning, steep declines in new home prices and U.S. durable goods orders gave traders reasons to worry. But spirits were lifted when Federal Reserve Chairman Ben Bernanke implied more interest rate cuts are on the way, and regulators took steps to loosen up the tight mortgage market.

"It is important to recognize that downside risks to growth remain," Bernanke said in testimony before a U.S. House of Representatives committee on Wednesday. The Fed is closely watching "information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he added.

The testimony raised hopes for a significant interest rate cut at the Fed's next meeting, on March 18. Futures markets responded to Bernanke by now placing a 100% likelihood on chances the Fed will cut the federal funds rate by at least half a percentage point.

The value of the U.S. dollar, very sensitive to interest rate moves, fell to a record low against the euro Wednesday. The euro's value surpassed $1.51 for the first time, trading at $1.5124, up 1%. It was the fifth straight day of declines for the dollar.

Bernanke was responding to economic weakness that shows up in economic data day after day. On Wednesday, a report showed U.S. durable goods orders fell 5.3% in January, the biggest drop in five months. The volatile measure was up 4.4% in December. Transportation orders dropped 13.4% last month; excluding transportation, orders fell 1.6%. The volatility of the data makes it difficult for the market to make many conclusions about the economy, Action Economics says.

In other economic news, new home sales fell 2.8% to 588,000 in January, a bigger drop than expected. The median price of a new home has plummeted 15.1% in the past year.

One factor in the weak housing market is the mortgage market, which has been damaged by the subprime credit crisis.

On Wednesday, housing-finance regulator OFHEO said it would lift restrictions on government-sponsored mortgage firms' investment portfolios. This will allow Freddie Mac (FRE) and Fannie Mae (FNM) to buy up more mortgages. That could add liquidity to the mortgage market and encourage more lending to homebuyers or homeowners looking to refinance.

Removing the caps will have "a modest positive impact on the housing crisis," said Ryan Sweet of Moody's Economy.com. But, he wrote, "Such measures to boost liquidity and aid distressed mortgage borrowers will only take the edge off of the correction -- they won't end it."

Also Wednesday, Fannie Mae demonstrated the extent of the mortgage industry's troubles by reporting a $3.6 billion loss. Fannie Mae's losses are mounting as home-loan delinquencies rise, a trend it expects to continue this year along with general weakness in the housing market. The mortgage buyer posted a loss of $3.80 per share, triple what analysts were expecting.

The Dow Jones industrial average ended the trading session was up 9.36 points, or 0.07%, to 12,694.28. The broader S&P 500 was down 1.27 points, or 0.09%, to 1,380.02. And the tech-heavy Nasdaq composite index gained 8.79 points, or 0.37%, to 2,353.78.

On the New York Stock Exchange, 17 stocks fell in price for every 14 moving higher. On the Nasdaq, the ratio was 15 to 14 negative.

On Wednesday, oil prices fell below the $100 per barrel mark that was breached on Tuesday. April West Texas Intermediate crude oil futures were down $1.25 to $99.63 per barrel in NYMEX trading.

Among stocks in the news Wednesday, Microsoft (MSFT) was fined a record $1.3 billion Wednesday by the European Union. As part of its ongoing antitrust fight with the EU, regulators say Microsoft charged rivals "unreasonable prices" for software information, needed to make products compatible with the Windows operating system.