Fed calms investors after week of wild stock swings

NEW YORK -- Wall Street closed out an extraordinarily difficult week with a mixed finish Friday after the Federal Reserve injected billions of dollars into the banking system to calm markets torn by worries about evaporating credit. The Dow Jones industrials, down more than 200 points in the session, ended with just a 30-point deficit.

The stock market, which has been gyrating for weeks over fears that credit is drying up, pared its losses after the Fed's second injection of cash and morning comments from the central bank that it would do all it can to "facilitate the orderly functioning of financial markets." The day's declines and continued volatility, however, showed the depths of fear that have investors yanking money out of stocks.

The Fed added $19 billion in liquidity to the market Friday morning, then another $16 billion and, in midafternoon, $3 billion.

Federal Reserve policymakers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni, president of Yardeni Research in Great Neck, N.Y.

But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting."

He noted that it was Fed rate cuts that calmed the market after the 1998 Russian debt crisis and the implosion of the hedge fund Long-Term Capital Management.

The Fed stepped in Friday after injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system on Thursday.

The Dow closed down 31.14, or 0.2%, at 13,239.54. On Thursday, the Dow fell 387 points and extended a series of triple-digit moves that began in late July.

Friday's moves were typical of the zigzag trading and triple-digit moves in the Dow since the index closed at a record 14,000.41 on July 19. The Dow is down about 761 points, or 5.4%, from its record close.

Broader stock indicators finished mixed. The Standard & Poor's 500 index edged up 0.55, or 0.04%, to 1453.64, and the Nasdaq composite index fell 11.60, or 0.5%, to 2544.89.