Stocks gave up a modest advance Monday to trade lower as concerns about a weakening credit market unraveled some enthusiasm over reports of strong electronics sales over the holiday weekend.
The New York Federal Reserve, acknowledging "heightened pressures" in money markets that are expected to last the rest of the year, said it plans to conduct a series of term repurchase agreements aimed at boosting liquidity in the credit markets. The New York Fed, which carries out monetary policy set by the U.S. Federal Reserve, said it would inject $8 billion to the banking system on Wednesday.
Meanwhile, banks showed more signs of having been hurt by credit market problems. Citigroup cwarned it is looking to cut costs— raising the possibility of further job cuts — and HSBC Holdings hbc said it plans to bail out two funds it manages. To do so, Europe's largest bank plans to move about $45 billion of the fund's assets onto its balance sheet.
A better-than-expected report on retail sales wasn't able to hold the market's gains. Retail sales on Friday and Saturday combined rose 7.2% to $16.4 billion from the same two-day period a year ago, according to ShopperTrak, which tracks total sales at more than 50,000 U.S. retail outlets. That's helped ease investor concerns about consumer spending, which accounts for two-thirds of all economic activity.
"It seems that the market is doing what it knows best in times of uncertainty and that is fluctuating, said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners. "I suspect that this is going to be the trend that we're going to see over the next week or so as we await economic data."
Last week, the Dow lost 1.5%, the S&P slid 1.2% and the Nasdaq gave up 1.5%.
With energy prices at the highest in decades, and economic uncertainty looming over the market, investors have been nervous that consumers could cut back during the holidays.
Energy prices fluctuated in early trading. A barrel of light, sweet crude fell 90 cents to $97.28 on the New York Mercantile Exchange, after briefly crossing $99 overnight.
Gold prices rose, while the dollar fell against other major currencies.
Economic news is expected to be light Monday, with traders looking ahead to the readings on consumer confidence, existing home sales and orders for big-ticket goods due later in the week.
"The early focus was on the consumer and the weekend sales but of course subprime always seems to pop its head up," Cardillo said, referring to loans made to borrowers with poor credit. Some of these loans are now going bad, forcing banks to write off huge sums.
In Europe, embattled mortgage lender Northern Rock said Monday it will hold accelerated takeover negotiations with a consortium led by Virgin Group. Northern Rock ran into problems in September when the short-term credit on which it relied dried up as banks became more wary of lending, and the Bank of England stepped in as a lender of last resort.
Weighing somewhat on the market's optimism, Citigroup reduced its outlook on several major home builders on Monday, saying a glut of inventory and coming resets of subprime mortgages will continue to weigh on the sector at least through the second quarter of 2008.
Overseas, Britain's FTSE 100 fell 0.9%, Germany's DAX index lost 0.5% and France's CAC-40 dipped 1.2%. In Asia, Japan's Nikkei stock average closed up 1.7%, Hong Kong's Hang Seng index gained 4.1%.