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Stocks steady after BP agrees to $20B victim fund
Question of the Day
NEW YORK (AP) — Stocks pulled off early lows to trade nearly flat Wednesday after BP's agreement to put $20 billion into a fund for victims of the Gulf of Mexico oil spill eased some of the uncertainty about the company's stability.
BP shares rebounded and helped steady the overall market. The Dow Jones industrial average rose about 7 points in afternoon trading. Broader indexes also rose. The modest moves came a day after the Dow rose 214 points to its highest close in nearly a month. Stocks had risen three of the past four days.
BP plans to put $20 billion into a fund for victims, senior administration officials told The Associated Press. The agreement comes as President Barack Obama met with BP executives at the White House. Traders have been questioning how BP will handle the mounting costs of the spill, which began April 20 when a rig operated by BP exploded.
"One source of uncertainty has been at least partially resolved," said Brian Gendreau, a market strategist with Financial Network Investment Corp.
The market began the day lower after home construction and applications for building permits slumped in May following the end of a homebuyer tax credit. Meanwhile, a disappointing profit forecast from FedEx Corp. raised questions about the economic recovery. The package delivery company is seen as a barometer of the economy because shipping demand tends to increase as business conditions improve. The stock fell 3.5 percent.
The government's report on housing raised concerns that weaker demand for homes will hurt an economic rebound. Construction of homes and apartments fell 10 percent from a month earlier to an annual rate of 593,000, well below the 650,000 economists had forecast. A 17 percent drop in construction of single-family homes was the largest since January 1991.
Applications for building permits fell 5.9 percent to the lowest level in a year. Analysts had forecast an increase. Demand for permits is an indicator of future homebuilding activity.
The weaker-than-expected numbers come after a homebuyer tax credit expired in April.
Kevin Smith, a housing market analyst at Chapdelaine Credit Partners in New York, said the drop in the home construction and permit numbers extends a string of choppy readings since October, and that it's too soon to tell how housing will hold up. He noted that the prior month had been the best in more than two years.
"It's going to be a bumpy ride," Mr. Smith said. He said housing won't make a strong recovery until unemployment falls and overall confidence grows.
Shortly before the close, the Dow fell 20.10, or 0.2 percent, to 10,384.74. On Tuesday, the Dow ended above its average close of the past 200 days for the first time since May 19. Finishing above that level is seen as a sign of strength.
The broader Standard & Poor's 500 index fell 3.33, or 0.3 percent, to 1,111.90, and the Nasdaq composite index fell 3.39, or 0.2 percent, to 2,302.49.
Stocks also steadied after the euro pulled off its lows. A Spanish newspaper reported that the International Monetary Fund and European Union were trying to come up with a financial rescue for Spain. That hit the euro and pushed the dollar higher. Officials in Spain denied the report. The country, like Greece and Portugal, is facing high debt loads. The euro fell to $1.2318.
U.S. markets have been tracking the moves of 16-nation euro since major stock indexes hit their 2010 peak in late April. Traders see the shifts in the euro as a reading on confidence in Europe's ability to cut spending without endangering an economic rebound there, which could spill over to other regions.
Bond prices edged higher, pushing down interest rates. The yield on the benchmark 10-year Treasury note slipped to 3.30 percent from 3.31 percent late Tuesday.
FedEx fell $4.80, or 5.8 percent, to $78.01 after its fiscal 2011 forecast came in below analysts' forecasts. The company said its outlook was based on the assumption of a continued "moderate recovery" in the global economy.
BP fell 22 cents, or 0.7 percent, to $31.61.
Homebuilders were mixed after the government's report. Toll Brothers Inc. fell 18 cents to $18.75, while KB Home fell 23 cents to $12.92.
Crude oil rose 72 cents to $77.66 per barrel on the New York Mercantile Exchange. Gold climbed.
Losing stocks were ahead of advancers by 3 to 2 on the New York Stock Exchange, where volume came to 954 million shares.
The Russell 2000 index of smaller companies fell 1.7, or 0.3 percent, to 667.07.
Britain's FTSE 100 rose 0.4 percent, Germany's DAX index gained 0.3 percent, and France's CAC-40 rose 0.4 percent.
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