Stocks Mixed On Short-Term Credit Report

The Dow Jones industrial average slipped Thursday as investors looked past an upbeat report on the economy and instead focused on data showing weakness in a crucial corner of the corporate-lending market.

That data, from the Federal Reserve, showed that the commercial paper market -- where companies go for short-term loans -- remained abnormally tight, raising concerns that the economy would be harmed if businesses are forced to reduce spending.

The Dow, comprising 30 blue-chip stocks, fell 50.56, or 0.4 percent, to 13,238.73. The Standard & Poor's 500-stock index, a broader market measure, fell 6.12, or 0.4 percent, to 1457.64. The tech-heavy Nasdaq composite index, rose 2.14, or 0.1 percent, to 2565.30.

The total amount of corporate commercial paper outstanding fell $62.8 billion during the week ended Wednesday, to $1.98 trillion, the Fed said. The drop followed declines of more than $90 billion in each of the previous two weeks as companies had trouble finding buyers. Since Aug. 8, the day before turmoil in the credit market hit financial markets around the world, the amount outstanding has dropped 11 percent.

Much of the decline has come from commercial paper backed by assets, such as mortgages, subprime loans and credit card debt. The total amount outstanding of asset-backed commercial paper, which accounts for half of the market, fell $59 billion during the week, to $998 billion.

Companies that have relied on such short-term credit include mortgage lenders Countrywide and H&R Block, Wall Street firms Bear Stearns and Lehman Brothers, and Capital One, the Virginia-based bank, according to Thomson Financial.

"No one is stepping up to the plate to purchase this paper," said Frank Scaturro, vice president of corporate advisory services at Thomson Financial. If a business needs "capital for day-to-day expenditures, whether that's to do a buyback or run your base of operations . . . it may cause you to rethink certain strategies because you can't tap the credit markets as easily."

The next big market event will come Friday morning when Fed Chairman Ben S. Bernanke is to give a speech in Jackson Hole, Wyo. Investors will listen for clues to what the central bank's policymaking committee will decide when it meets Sept. 18. The market is counting on it to cut the federal funds rate, which would lower borrowing costs for consumers and businesses, which in turn could help stocks.

So far, the Fed has responded to the credit market turmoil in several ways, but has not cut that benchmark short-term interest rate. On Thursday, the central bank put $10 billion more into the financial system, bringing the total of amount of such injections to $147 billion since credit markets began their fall on Aug. 9.

The central bank also has cut the rate at its discount window, where banks go to borrow directly from the Fed. Data released by the agency Thursday showed this borrowing rose for the second week in a row, with daily borrowing averaging $1.32 billion for the week ended Wednesday. That amount surpassed last week's average of $1.2 billion, which had been the highest since the Sept. 11, 2001, attacks.

Shares in all sectors ended lower Thursday, except for tech stocks, which rose by 0.4 percent. Among the movers were Motorola, whose shares rose 1.7 percent, to $16.75, after Lehman Brothers upgraded the phone maker's stock.

After the market closed, Dell reported second-quarter profit that beat analysts' expectations. Shares of the computer maker rose 2.2 percent, to $28.46, before the earnings report.

The financial sector continued to be a drag. Freddie Mac shares, the mortgage funding giant, fell 5 percent, to $60.07, after the company reported that its quarterly profit fell by nearly half in part because it had to set aside more money to cover expected losses from defaults on loans.

Adding to investor nervousness about the state of the housing and mortgage markets was an analyst report from Lehman Brothers, reduced its earnings forecast for four of Wall Street's biggest investment firms through 2008. Shares of the companies named in the report -- Goldman Sachs, Merrill Lynch, Morgan Stanley and Bear Stearns -- all fell Thursday.

"The reality, in our view, is that 3Q earnings will be significantly impacted by the dislocation in the credit and asset-backed/mortgage markets," the report said.

Also Thursday, traders and money managers largely ignored a favorable report on the economy, which measured activity from April to June, before much of the turmoil in the financial markets took place.

The report from the Commerce Department showed that gross domestic product rose at a seasonally adjusted annual rate of 4 percent in the second quarter, but analysts said it shed little light on how the economy would look given the problems in the credit market.

"Most people are probably just totally discounting the second quarter report as, 'That's in the rearview mirror and we're in a whole new ball game,' " said James W. Paulsen, chief investment strategist for Wells Capital Management.

More telling, some analysts said, was the weekly unemployment-claim figures released Thursday. Claims rose by 9,000, to 334,000, in the week ending Saturday, the Labor Department said.