Optimism grows that Fed will cut rates again

NEW YORK » Wall Street ended an erratic session mixed yesterday as investors grew more confident that the Federal Reserve will lower interest rates again to ward off recession and as they also wrestled with worries about the upcoming earnings season.

Investors have grown more optimistic about a rate cut at the Fed's Jan. 29-30 meeting after last week's disappointing reports on jobs and manufacturing pointed to a slowing in the economy last month.

That optimism kept stocks from falling far during a session that saw the major indexes reverse course several time. But Wall Street remained uneasy as it awaited fourth-quarter earnings season, which unofficially starts tomorrow, when aluminum producer Alcoa Inc. posts results. Analysts said investors will be paying particular attention to financial services stocks that have been hit hard by the ongoing credit crisis.

"The puzzle pieces are not aligning for the stock market right now," said Jack A. Ablin, chief investment officer at Harris Private Bank, of yesterday's trading. He noted that the Standard & Poor's 500 stocks still appear overvalued ahead of a fourth-quarter earnings season that most investors are pessimistic about.

The Dow Jones industrial average rose 27.31, or 0.21 percent, to 12,827.49, after moving in and out of positive territory throughout the session.

Broader stock indicators ended mixed. The Standard & Poor's 500 index rose 4.55, or 0.32 percent, to 1,416.18, and the tech-focused Nasdaq composite index fell 5.19, or 0.21 percent, to 2,499.46.

The Russell 2000 index of smaller companies advanced 2.36, or 0.33 percent, to 723.96.

Advancing issues outpaced decliners by 9 to 7 on the New York Stock Exchange, where volume came to 1.71 billion shares.

It was seventh straight session of losses for the Nasdaq, which greatly outperformed the Dow and the S&P in 2007.

Last week, in just the first three trading days of 2008, the Dow lost 3.50 percent, the S&P 500 index fell 3.86 percent, and the Nasdaq dropped 5.57 percent.

Bond prices continued to rise yesterday after a rally during the past week. The yield on the benchmark 10-year Treasury note, which moves opposite its price, dipped to 3.84 percent from 3.87 percent late Friday.

Oil fell on the belief a cooling global economy will decrease demand for energy. A barrel of light sweet crude tumbled $2.82 at $95.09 on the New York Mercantile Exchange.

The dollar rose against most major currencies, while gold declined.

In corporate news, Time Warner Inc. fell 11 cents to $15.80 after the entertainment company announced it plans to release high-definition movies on Blu-ray rather than Toshiba Corp.'s HD DVD formal. Blu-ray is owned by Sony Corp.

Krispy Kreme Doughnuts Inc. Chief Executive Daryl Brewster resigned for personal reasons, amid a sputtering turnaround effort for the Winston-Salem, N.C.-based company. Shares rose 32 cents, or 11.3 percent, to $3.15.

There was also management reshuffling at Sallie Mae, after which SLM Corp. rose $1.16, or 7 percent, to $17.83 after plunging Friday.