Stocks fluctuate on Fed caution

Home prices rise more than expected. Consumer confidence increases. The Federal Reserve agrees to consider more steps to boost economy if necessary.

By TheStreet Staff Aug 31, 2010 7:59AM

TheStreetBy Sung Moss, TheStreet


Updated at 2:37 p.m. ET


U.S. stocks were fluctuating after minutes released by the Federal Reserve revealed the policy-making arm's cautious view of the economy.


At 2:37 p.m. ET, the Dow Jones Industrial Average ($INDU) was down 12 points, or 0.1%, at 9,997. The S&P 500 ($INX) was down 2.8 points, or 0.3%, at 1,046. The Nasdaq ($COMPX) was falling 10%, or 0.5%, at 2,110. 


The Aug. 10 meeting of the Federal Open Market Committee ended with policymakers leaving the key fed funds rate unchanged at near zero. Members agreed to consider further steps to boost the economy if conditions were to decline significantly, according to minutes from the meeting.


With economic indicators waning on several fronts, the group said it would reinvest proceeds from agency debt and mortgage-backed securities into long-term Treasuries. The minutes showed members had varying opinions about the effectiveness of the reinvestment program.


Stocks had been gaining after the Conference Board said its consumer confidence index increased to 53.5 in August from 51 in July, beating the 50.7 median forecast of economists surveyed by Bloomberg. The report comes a day after weak data on consumer spending caused the Dow to lose 141 points.

"Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future," said Lynn Franco, the Conference Board's director.

The Standard & Poor's/Case-Shiller 20-city composite home price index rose 4.2% in June from a year earlier, more than the 3.1% economists surveyed by had expected. In May, the National Home Price Index increased 4.6% from a year earlier.


While prices increased in 17 of the 20 cities included in the index, the group said "other recent housing indicators point to more ominous signals as tax incentives have ended."


The Institute for Supply Management said business expansion in the Chicago area slowed in August. Its Chicago purchasing managers index declined to 56.7  from 62.3 in July. Economists had expected the index to fall to 57. Readings of more than 50 indicate growth.


Caterpillar (CAT) was the top-performing Dow stock, rising 1.7%, followed by JPMorgan (JPM) and Verizon (VZ). Intel (INTC) was the biggest laggard, losing 0.7%, followed by Boeing (BA) and Alcoa (AA).


Technology stocks were coming under pressure after the research firm Gartner said computer shipments would hit 367.8 million this year, instead of the 376.6 million forecast in May.


Dell (DELL) is expected to drop out of the bidding war to acquire 3Par (PAR), Reuters said, citing a survey of analysts and investors. Rival Hewlett-Packard (HPQ) raised its offer to $30 a share last week, giving Dell until Wednesday to reply. Dell shares were falling 1.4% to $11.85, while 3Par's were losing 0.6% to $31.63. HP shares were up 0.4% at $38.72.


Deere (DE) agreed to sell its wind-energy business, Deere Renewables, to the electricity provider Exelon (EXC) for about $900 million. Deere shares were adding 0.9% to $62.56. Exelon's were down 0.3% at $40.42.


Shares of Monsanto (MON) were losing 6% at $52.66 after the seed seller said its annual earnings would likely hit the low end of prior projections of $2.40 to $2.45 a share.


Lions Gate Entertainment (LGF) jumped 13% to $7.31 after CNBC reported that billionaire investor Carl Icahn increased his offer for the company to $7.50 per share from $6.50 per share. The new offer expires on Oct. 22, the report said.


Saks (SKS) shares were surging 22% to $8.06 after the U.K.'s Daily Mail said a private-equity buyout could be in the works for the retailer.


American International Group's (AIG) sale of its Taiwanese life insurance unit to Primus Financial Holdings was rejected by Taiwanese regulators, The Associated Press reported. Taiwanese regulators were concerned that Primus might be receiving funds from Chinese investors, which is against Taiwan law. AIG shares were gaining 0.1% at $34.04.


Discount retailer Dollar General (DG) said its fiscal-second-quarter profit increased 51% to $141.2 million, or 41 cents a share. Excluding certain items, the company earned 42 cents, beating estimates for 38 cents. The company boosted its full-year earnings forecast to $1.68 to $1.74 a share from $1.62 to $1.69. The stock was down 0.8% at $27.16.


Shoe store chain DSW (DSW) said its fiscal-second-quarter profit tripled to $23.5 million, or 52 cents, as the company expanded profit margins. Analysts polled by Thomson Reuters had forecast a profit of 47 cents. Retail Ventures (RVI) owns a majority stake in the company. DSW shares were falling 1% to $23.57, while Retail Ventures' were down 4.5% at $8.50.


HSBC (HBC) said its $3.56 billion sale of its auto finance units in the U.S. to Banco Santander (STD) was completed. HSBC's American depositary receipts were up 0.4% to $49.17. Banco Santander's were rising 1.1% at $11.73.


Stocks began the session in the red after concerns about the strengthening yen and fears about the economy caused Japan's Nikkei to close at its worst level in 16 years.

The Nikkei dropped 3.6% and Hong Kong's Hang Seng fell 1%.


The FTSE in London was adding 0.5%, and the DAX in Frankfurt was up 0.2%.


In commodity markets, crude oil for October delivery was losing $2.10 at $72.60 a barrel. The December gold contract, the most actively traded gold future, was gaining $10.70 at $1,249.90 an ounce.


The benchmark 10-year Treasury note was up by 7/32, diluting the yield to 2.507%.


The dollar was trading lower against a basket of currencies, with the dollar index down by 0.2%.


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