Bear Stearns Cos., Goldman Sachs Group Inc. and Merrill Lynch & Co. led declines in brokerages after Lehman Brothers Holdings Inc. said some precautions against mortgage losses were ineffective. Financial shares limited their retreat in the last hour of trading and the Dow Jones Industrial Average and Standard & Poor's 500 Index ended higher after Bear Stearns said Freddie Mac, the second-biggest U.S mortgage finance company, has enough money to fund its operations.
About three stocks declined for every two that rose on the New York Stock Exchange. The Nasdaq Composite Index fell 2.65, or 0.1 percent, to 2,668.49. The Dow increased 44.06, or 0.3 percent, to 13,517.96, led by a 5 percent advance in Honeywell International Inc. The S&P 500 added 1.82, or 0.1 percent, to 1,488.41. Benchmarks in Asia and Europe slumped.
``Doing other things to inject liquidity really doesn't address the issue of broader economic weakness,'' said David Joy, who helps oversee $161 billion as chief market strategist for Riversource Investments LLC in Minneapolis. With financials, ``it's too early to step up and take a stand that these stocks are undervalued. If you dip your toe in the water, you could still get burned.''
Small Caps, Retailers Slump
Smaller companies led the market lower, with the Russell 2000 Index, a benchmark for shares with a median market value of $598 million, falling 0.3 percent. The NYSE Composite Index of all common shares on the New York Stock Exchange lost 0.6 percent.
A gauge of chain stores declined 1.1 percent, led by Home Depot Inc. and Target Corp., after a report showing the biggest surge in wholesale inflation in 34 years overshadowed a stronger- than-expected report on retail sales.
Goldman, the largest securities firm, lost $4.10 to $208.48. Merrill, the third-largest, slumped 98 cents to $57.83. Bear Stearns, the second-biggest U.S. mortgage-bond underwriter, dropped $2.45 to $98.39.
Lehman Brothers lost 45 cents to $61.37. The largest U.S. underwriter of mortgage bonds said fourth-quarter investment banking revenue fell 3 percent to $831 million and fixed-income capital markets revenue declined. Net income fell 12 percent to $886 million.
`A Lot of Uncertainty'
``There will be a lot of people looking at their report to try to gain some insight into what might happen down the road with other brokerages and banks,'' said Ed Laux, head of U.S. trading at Cantor Fitzgerald & Co. in New York. ``There's still a lot of uncertainty and worry about valuations in the financial sector.''
Financial shares also fell after the cost of borrowing euros stayed at the highest since December 2000, signaling the plan by the Federal Reserve and four other central banks to inject funds into the financial system isn't lowering borrowing costs and boosting lending.
Washington Mutual fell 47 cents to $15.59. The biggest U.S. savings and loan was cut to ``sell'' from ``neutral'' at Bank of America Corp. on concern credit quality may deteriorate further and it may have to raise funds. The brokerage also reduced its price estimate on the stock by 46 percent to $13.
Countrywide Financial Corp., the biggest U.S. mortgage company, lost 45 cents to $10.08. American International Group Inc., the largest insurer, slumped $1.16 to $57.05.
Financial companies in the S&P 500 are expected to report a 36 percent average profit drop in the fourth quarter, the worst performance among 10 industries, according to a Dec. 7 Bloomberg survey.