Stock Indexes Gain in a Wild Session

Blue chips rose despite big losses at Freddie Mac and the Fed's more downbeat view on the economy. The broader market was mixed

Stocks closed mixed Tuesday as late bouts of bargain hunting and short covering lifted the Dow Jones industrial average and other major indexes but left the broader market flat to lower. Blue chips and oil issues were among the best performers on the session, with the latter group advancing in step with a jump in crude prices.

Indexes’ gains came even as financial stocks extended their recent weakness. The culprit this time: Freddie Mac (CFC). The mortgage finance giant’s shares got walloped Tuesday after it posted a big third-quarter loss and said it may cut its dividend.

Minutes from the Federal Reserve’s October policy meeting – and a new set of forecasts on economic growth and inflation from the central bank -- sent mixed messages to the market.

Major indexes were able to pull out of a four-day skid Tuesday, though the session was quite volatile, as equities started strong, slipped into the red near midsession, and then clawed their way back into the green in the final hour of trading. The Dow Jones industrial average closed higher by 51.7 points, or 0.4%, to 13,010.14, moving back above the psychologically significant 13,000 level. The broader S&P 500 index gained 6.43 points, or 0.45%, to 1,439.7. The tech-heavy Nasdaq composite index added 3.43 points, or 0.13%, to 2,596.81.

Traders Tuesday eyed a report showing a surprising rise in housing starts in October, but a plunge in building permits. Wall Street also weighed strong results from tech titan Hewlett-Packard (HPQ). Market rumors of an emergency FOMC meeting were greeted with skepticism, notes S&P MarketScope.

Outside of the major indexes, action in the broader market was not as positive. On the New York Stock Exchange, 17 shares declined in price for every 16 that advanced. NASDAQ breadth was 18-12 negative.

Phil Roth, a technical analyst for Miller Tabak in New York, notes that that this is a holiday week, when the market is usually up in the days that bracket Thanksgiving. "So the market will probably rebound and again abort its decline temporarily," he wrote in a Nov. 20 note. But Roth expects to see "a deep short term oversold condition and a medium term oversold condition before the next broad, sustained advance".

Financial stocks took it on the chin again Tuesday. The S&P Thrifts & Mortgage Finance index sank 15% in a very rough trading session, led by losses in Freddie Mac. The government-sponsored enterprise (GSE) posted a third quarter loss of $3.29 per share vs. a $1.17 loss one year earlier, noting that the loss reflects a higher provision for credit losses and on mark-to-market items, and a significant deterioration of mortgage credit as a result of continued weakness in the housing market.

Freddie Mac said that in order to manage to the 30% mandatory target capital surplus, and respond to regulatory concerns, it plans to take several actions, including engaging Goldman Sachs and Lehman Brothers as financial advisors. It is also seriously considering reducing its fourth quarter dividend by 50%. Fitch Ratings put Freddie Mac on negative watch following the news, saying that it may cut the firm's preferred stock rating by one notch.

Freddie Mac shares plunged 29% Tuesday, while fellow GSE Fannie Mae (FNM) tumbled 25%.

Also weighing on the sector: Market rumors that mortgage lender Countrywide Financial (CFC) is set to file for bankruptcy, which the company dismissed as "absolutely false" on Tuesday, according to press reports. Countrywide shares ended lower by 2.7% after being down as much as 15% in Tuesday’s session.

On Tuesday, the Federal Reserve released the first installment of its quarterly projections for growth, jobs, and inflation over the coming three years that will be released alongside the minutes

from the Oct. 30-31 FOMC meeting.