- The Washington Times - Wednesday, July 16, 2008

NEW YORK | Wall Street ended a whipsaw day mostly lower, as fears of escalating instability in the financial sector kept investors on edge despite a steep retreat in oil. The Dow Jones Industrial Average on Tuesday had its first close below 11,000 since July 2006.

Just days after the government said it would aid Fannie Mae and Freddie Mac if necessary, Federal Reserve Chairman Ben S. Bernanke told Congress that the U.S. economy faces “numerous difficulties.” During the day’s testimony, Treasury Secretary Henry M. Paulson Jr. also said the Bush administration has no immediate plans to lend money to the mortgage giants or buy their stock.

Shares of Fannie and Freddie — which together hold or back nearly half of all the nation’s mortgages — tumbled again.

The stock market did benefit from some bargain hunting as oil retreated from its near-record levels, but the uncertainty of the financial sector made that recovery hard to sustain. If oil prices stabilize or retreat, consumers might feel more comfortable spending on discretionary items, and in turn help the economy.

A barrel of light, sweet crude dropped $6.44 to settle at $138.74 on the New York Mercantile Exchange as traders bet that the weak economy in the United States and elsewhere will take its toll on global demand.

While some of the market’s most battered bank stocks — including Washington Mutual Inc., Lehman Brothers Holdings Inc. and regional bank First Horizon National Corp. — finished higher Tuesday, most bank stocks gave up their brief rallies by the end of the session.

The Dow fell 92.65, or 0.84 percent, to 10,962.54. It was the blue chips’ lowest close since July 21, 2006; the high price of oil is one of the major reasons the Dow has been trading at nearly two-year lows.

Broader stock indicators ended mixed. The Standard & Poor’s 500 Index fell 13.39, or 1.09 percent, to 1,214.91, while the Nasdaq Composite Index rose 2.84, or 0.13 percent, to 2,215.71.

Among the stronger stocks of the day were Lehman, which rose 82 cents, or 6.6 percent, to $13.22; WaMu, which rose 38 cents, or 11.8 percent, to $3.61; and First Horizon, which rose 85 cents, or 16.9 percent, to $5.89. First Horizon named a new chief executive on Tuesday.

Fannie Mae fell $2.66, or 27 percent, to $7.07, and Freddie Mac fell $1.85, or 26 percent, to $5.26. Mr. Paulson said that if the government extends financial backing to the two institutions, it will be “under terms and conditions that protect the U.S. taxpayer.”

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