Little change for Dow

Wall Street recovered from steep losses today amid hopes for an imminent interest rate cut, but stocks still closed down in response to Merrill Lynch's credit-related losses and a sharp drop in existing home sales.

The Dow Jones industrials fell in morning trading by up to 200 points after the market faced one of its most-feared scenarios: Not only was the housing implosion dampening corporate profits, it appeared to be accelerating.

But the blue chip index reversed direction later in the day, briefly bobbing into positive territory as rumours circulated that the Federal Reserve, scheduled to meet next week, might lower the discount rate before then.

The Central Bank has also been adding a substantial amount of liquidity to the financial system over the last three days.

"Once people hear about a rumour, they cover their shorts. Even though it's just a rumour that's out there," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. Short-covering is when traders undo bets that the market is going to fall.

"There was a lot of bad news this morning. It's pretty clear Wall Street wants a rate cut and wants it soon."

Merrill said it wrote down $7.9bn (€5.5bn) in fixed-income instruments called collateralised debt obligations and from defaulting subprime mortgages - more than the $5bn (€3.5bn) writedown the investment bank estimated earlier this month. The result was a net loss for the quarter of $2.3bn (€1.6bn).

The Dow closed off just 0.98, or 0.01%, at 13,675.25.

Broader stock indicators also dipped, but were off earlier lows. The Standard & Poor's 500 index fell 3.71, or 0.24%, to 1,515.88, while the technology-dominated Nasdaq composite index lost 24.50, or 0.88%, to 2,774.76.