Bank results spark Wall Street losses

Wall Street pared its losses to finish flat today but remained uneasy after disappointing results from Bank of America Corp provided further evidence that the credit crisis is hurting the economy.

The Dow Jones industrial average, which fell as much as 60 points early in the session, rebounded as bargain hunters entered the market, betting that dismal data could convince the Federal Reserve to lower rates again.

Still, investors remained spooked after BofA – considered a bellwether for the banking industry because it has branches across the country – said “significant dislocations” in the capital markets sent third-quarter profits down 32%. Citigroup Inc and Washington Mutual Inc reported similar results in recent days.

Banks and brokerages have been hurt during the third quarter in the fallout from the subprime mortgage crisis. As people with weak credit defaulted on loans at an alarming rate, it triggered a global aversion for risk that led the credit markets to freeze up.

Treasurys rallied and the dollar fell to a new low against the euro after the Labor Department said the number of newly laid off workers filing claims for unemployment benefits shot up last week by the largest amount since February.

The report was far worse than economists expected, and signalled that the labour market could be starting to weaken from a downturn in housing and the global credit turmoil.

“There are so many factors going on right now between the dollar getting crushed, oil moving higher, and news out of the banking sector,” said Greg Church, chief investment officer of Church Capital Management. “Yet, it is amazing to me that this market continues to lift its head.

The market came back somewhat because there’s that whole camp that thinks any bad news is good news that the Fed will lower rates.”

The Dow fell 3.58, or 0.03%, to 13,888.96.

Broader indexes finished mixed. The Standard & Poor’s index fell 1.16, or 0.08%, to 1,540.08, while the Nasdaq composite index added 6.64, or 0.24%, to 2,799.31.

The yield on the benchmark 10-year Treasury note, which moves inversely to prices, fell to 4.51% from 4.55% late Wednesday. Treasury prices rose again after rallying sharply on Wednesday amid growing signs of trouble in the housing sector.

Also, the Philadelphia Federal Reserve reported that its October manufacturing index came in weaker than expected. The report showed a slowdown in growth for the regional economy, and some inflationary pressures.

Sluggish economic data could help motivate the US Federal Reserve to cut interest rates at its October 30-31 meeting. Central bankers cut rates by a half point at their September meeting.

Oil prices continued their advance due to further tensions between Turkey and Kurdish rebels in northern Iraq. Light, sweet crude rose $2.07 to settle at a record $89.47 a barrel on the New York Mercantile Exchange.

Disappointing results from BofA made the market wary about other upcoming earnings reports, including Google Inc and Advanced Micro Devices Corp after the closing bell.

“Washington Mutual and Bank of America announcements reminds people that there is a housing issue out there, and that its tough to analyse on how bad it can get before it gets better,” said John Forelli, portfolio manager for Independence Investment. “What we need is some confidence that other parts of the economy are reaccelerating as a result of the rate cuts.”

But technology shares could see a boost on Friday. After today’s closing bell, Google posted a 46% jump in its third-quarter profit, topping the big expectations that have elevated the internet search leader’s stock price by more than 100 during the past month. Google, which ended the regular session up 6.14 at 639.62, rose in heavy after-hours trading.

About 60 members of the Standard & Poor’s 500 index have reported quarterly results so far this week. Most of the attention has been on the nation’s biggest banks, which reported mostly disappointing results on write-downs from leveraged loans, mortgages, and consumer credit.

Bank of America fell 1.18, or 2.4%, to 48.85.

Washington Mutual tumbled 2.55, or 7.7%, to 30.52 after it reported quarterly profit plunged 72%. The stock hit a 52-week low of 30; its previous low was 31.27.

E-Trade Financial Corp late yesterday reported an unexpected loss because of its exposure to credit markets. The discount brokerage’s shares tumbled 1, or 8%, to 11.47.

The Russell 2000 index of smaller companies edged up 0.14, or 0.02%, to 825.03.

Declining issues led advancers by a thin margin on the New York Stock Exchange, where volume came to 1.27 billion shares compared with 1.42 billion traded yesterday.