Blue chips sag, S&P up in wild day on credit angst

By Caroline Valetkevitch

NEW YORK (Reuters) - Blue-chip stocks slipped on Friday, while the broader market edged higher on Friday after the Federal Reserve moved to shore up the banking system and ease anxieties over looming losses related to subprime mortgages.

As in previous sessions during a week of wild swings, the market shifted direction dramatically in the last hour of trade, with the S&P 500 ending higher, while the Nasdaq and Dow finished well off their session lows.

In an effort to calm the market, the U.S. Federal Reserve added cash to the banking system three times -- $38 billion in all -- and issued a statement that it would provide sufficient funds to prevent disruptions. It was the first time it had made such assurances since the September 11 attacks.

"People want to see how deep are these mortgage losses and how many creditors are really affected," said Andrew Kanaly, chairman of Kanaly Trust Co., an investment advisory firm based in Houston, Texas. "Remember the old adage: Markets can discount good news and discount bad news, but can't discount what they don't know."

Investors worried that fallout from the subprime problems would make credit conditions tighter in the corporate and mortgage lending markets, and would impact profits and the economy.

Shares of industrial conglomerates were among the top drags on the Dow. Caterpillar Inc. declined 1.2 percent to $77.55.

The Dow Jones industrial average <.DJI> was down 31.14 points, or 0.23 percent, to end at 13,239.54. Earlier in the session, the Dow fell more than 200 points to a session low at 13,057.86.

But the Standard & Poor's 500 index <.SPX> inched up just 0.55 of a point, or 0.04 percent, to finish at 1,453.64. The Nasdaq Composite Index <.IXIC> was down 11.60 points, or 0.45 percent, at 2,544.89. The Nasdaq had fallen as low as 2,503.16.

On Thursday, stocks suffered their second-worst decline of the year.

For the week, the Dow ended up 0.4 percent, the S&P rose 1.4 percent and the Nasdaq gained 1.3 percent.

The Fed's actions appeared somewhat successful as Wall Street's reaction paled in comparison to drops of 3 percent in the benchmark share indexes in London and Europe, as well as a 2 percent slide in Tokyo's Nikkei average. Japan's broad TOPIX index <.TOPX> also slid 3 percent.

Besides the U.S. Federal Reserve's cash infusions, the European Central Bank, the Bank of Japan and the Bank of Canada also injected additional liquidity into financial systems to calm markets on Friday.

Shares of companies beaten down in the previous session, when stocks had their second-worst day of the year, were among Friday's gainers, including International Business Machines Corp. , up 1.7 percent at $112.64.

Financials also rebounded after taking a beating, with Citigroup Inc. up 0.2 percent at $47 on the New York Stock Exchange. Bank of America Corp. gained 0.5 percent to $48.59.

Shares of U.S. mortgage companies dropped, including Countrywide Financial Corp., the largest U.S. mortgage lender, down 2.8 percent at $27.86. Countrywide said in a regulatory filing that it was facing "unprecedented disruptions" in the market to buy and sell home loans and that the ultimate impact was unknown.

Washington Mutual Inc. , the largest U.S. savings and loan, said in a separate regulatory filing that market liquidity had "diminished significantly," and that it would be "adversely affected" while this persisted. Its shares fell 2.2 percent to $35.95.

Shares of Honeywell International Inc. fell 1.4 percent to $56.01 on the NYSE and ranked among the biggest contributors to the Dow's decline.

(Additional reporting by Kristina Cooke)

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