9;17 am - Stocks end lower amid worries on Fannie, Freddie

NEW YORK (AP) - Wall Street's angst over the ongoing fallout from the creditcrisis made for a turbulent end to a volatile week Friday -- stocks tumbled,soared and then turned south again as investors tried to assess the dangersfaced by the country's biggest mortgage financiers, Fannie Mae and Freddie Mac. The Dow Jones industrial average, which traded down more than 250 points inthe session, briefly moved into positive territory Friday before ending downmore than 125 points. The blue chips also traded below 11,000 for the first timein two years. And all the major indexes ended with another losing week. A new high for oil prices above $147 a barrel also weighed on stocks. The fate of the government-chartered companies was a focus of trading Fridayas it had been earlier in the week. Shares of Fannie Mae and Freddie Mac fellsharply over several sessions on concerns about their stability. Wall Street isworried that a collapse of the two financiers would cause further shock to thefinancial system, and trigger more losses to banks and brokerages withsignificant holdings of mortgage-backed securities. The well-being of Fannie Mae and Freddie Mac is crucial because they hold orguarantee about $5 trillion worth of mortgages, or about half the outstandingmortgages in the United States. Their troubles are just the latest depressingturn in a year-old credit crisis that shows no sign of ending, disappointingsome stock traders who thought just months ago that the worst was perhaps over. Stocks fluctuated late in the session amid varying reports that the FederalReserve could aid Freddie Mac and Fannie Mae. Sen. Christopher Dodd, D-Conn., the Senate Banking Committee chairman,raised the prospect that the companies could be given access to emergencyFederal Reserve lending. Dodd, who spoke Friday to Fed Chairman Ben Bernanke andTreasury Secretary Henry Paulson, said the two are "looking at various options"for propping up the firms if they ultimately need help. Those include givingthem access to the Fed's emergency lending "discount window," Dodd said. But a Fed spokeswoman said later the central bank had not talked with Fannieand Freddie about the emergency lending program. She declined to discuss anyother options being considered. Earlier this year, the Federal Reserve took the unprecedented step ofoffering direct loans to investment banks from its discount window. Some observers noted that Freddie Mac and Fannie Mae weren't short of cash,but of access to capital. "The issue is who is going to make good on the long-term debt, not who isgoing to provide them with short-term cash," said Jerry Webman, chief economistat Oppenheimer Funds Inc. in New York. "It started with housing but it's now turning into this issue ofavailability of capital," he said of the overall problems in the financialsector. The concerns left the Dow down 128.48, or 1.14 percent, to end at 11,100.54after having fallen to 10,977.68. It last traded below 11,000 on July 25, 2006. Broader stock indicators also logged declines. The Standard & Poor's 500index fell 13.90, or 1.11 percent, to 1,239.49, and the Nasdaq composite indexfell 18.77, or 0.83 percent, to 2,239.08. Friday's drop meant Wall Street moved squarely into a bear market, which isdefined as a 20 percent drop from a recent peak. The Dow is down 21.6 percentfrom the record closing high of 14,164.53 it reached in October. The S&P 500 isdown 20.8 percent and the Nasdaq is off 21.7 percent. For the week, the Dow fell 1.67 percent, the S&P 500 lost 1.85 percnet andthe Nasdaq declined 0.28 percent. It was the fourth straight weekly decline forthe Dow and the sixth consecutive weekly decline for the S&P 500 and the Nasdaq. The market's other trouble spot, oil, continued its ascent, rising to atrading record of $147.27 amid tensions between the West and Iran. Light, sweetcrude for August delivery settled up $3.43 at $145.08, slightly below a recordclose of $145.29 a barrel set more than a week earlier. Bond prices fell sharply as investors worried a bailout of Fannie Mae andFreddie Mac could dent the government's credit rating. Ordinarily, bonds areseen as a safe haven during stock market pullbacks. The yield on the benchmark10-year Treasury note, which moves opposite its price, rose to 3.96 percent from3.80 percent late Thursday. The dollar was mixed against other major currencies,while gold prices rose. Worries about financials dominated trading. Freddie Mac fell 25 cents, or3.1 percent, at $7.75, after trading as low as $3.89 in the session. Fannie Maetumbled $2.95, or 22 percent, to $10.25 after trading as low as $6.68. Lehman Brothers Holdings Inc. fell $2.87, or 16.6 percent, to $14.43 astraders fretted that the No. 4 investment bank will succumb to soured debt. Citigroup Inc., also struggling with the consequences of failed mortgages,announced it will sell its German retail banking operation to France's CreditMutuel for $7.7 billion. Global banks and brokerages have scrambled to sellassets and raise capital in an effort to offset nearly $300 billion ofwrite-downs linked to the credit crisis. Citi slipped 9 cents to $16.19. Investors remain cautious about the entire financial sector, especiallyahead of second-quarter reports due next week from major names like JPMorganChase & Co. and Merrill Lynch & Co. JPMorgan declined $1.35, or 3.9 percent, to$33.16 and Merrill fell $1.10, or 3.8 percent, to $27.61. "I'm almost not worried about what they report," said Bill Stone, chiefinvestment strategist for PNC Wealth Management, referring to Wall Street'salready low expectations for the companies. "How much can they punish thesethings?" Friday's confluence of negative news offset a mostly positive quarterlyreport from General Electric Co. The industrial and financial conglomeratereported second-quarter profits that met analysts' expectations. The companysaid the forecast across its business lines was mixed. The stock rose 2 cents to$27.66. In economic news, the United States' trade deficit narrowed in May asexports -- including industrial supplies and consumer goods -- climbed toall-time highs. The Commerce Department said growing exports drove the trade gapdown to $58.8 billion, a 1.2 percent decrease from April and the best showingsince March. The good news did little to buoy investors' moods. "I don't know if it can get much worse," Stone said of investor sentiment."Usually you get this horrible sentiment and you're due for at least a bounceout of it." Beyond earnings reports, economic figures are due next week on inflation,retail sales and the housing market. Declining issues outnumbered advancers in Friday's session by about 2 to 1on the New York Stock Exchange, where consolidated volume came to a heavy 6.57billion shares compared with 5.71 billion shares traded Thursday. The Russell 2000 index of smaller companies rose 4.51, or 0.67 percent, to674.95. Overseas, Japan's Nikkei stock average fell 0.21 percent. Britain's FTSE 100fell 2.69 percent, Germany's DAX index declined 2.41 percent, and France'sCAC-40 fell 3.09 percent. The Dow Jones industrial average ended the week down 188.00, or 1.67percent, at 11,100.54. The Standard & Poor's 500 index finished down 23.41, or1.85 percent, at 1,239.49. The Nasdaq composite index ended the week down 6.30,or 0.28 percent, at 2,239.08. The Russell 2000 index finished the week up 9.17, or 1.38 percent, at674.95. The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted indexthat measures 5,000 U.S. based companies -- ended Friday at 12,635.43, down180.04 points, or 1.40 percent, for the week. A year ago, the index was at15,382.73.