Weak economic data and another report of a staggering loss at a New York brokerage firm dragged down financial stocks and sent the broader markets on a seesaw ride Thursday.
Bear Stearns Cos. reported an $854 million fourth-quarter loss — its first-ever quarterly loss — and said mortgage-related writedowns totaled $1.9 billion, up $700 million from an estimate last month.
The news was anticipated but nevertheless shook investors and hurt financials overall, traders said.
Bear Stearns shares declined in morning trading but recovered later and closed up 0.91%. Observers said the company's sour report reminded investors of the nagging credit crisis, weighing down the financial sector.
The American Banker index of 225 bank stocks closed down 0.43%. The index of the top 50 banks fell 0.7%, but the thrift index inched up 0.94%.
The Dow Jones industrial average pointed up at its opening, fell into the red by midday and then climbed back to finish up 0.29%. The Standard & Poor's 500 index closed up 0.49% on the day.
"When somebody steps up and throws the baby out with the bath water, you have this knee-jerk reaction," Joseph C. Morrissey, a trader at Boenning & Scattergood Inc., said of Bear Stearns in an interview Thursday.
"You have two kinds of people in the market right now: one that anticipates these problems and the other that simply reacts," he said. "There are enough in that second group, investors who are behind the curve and trying to play catch-up, that this is not the last time you'll see this."
Jittery investors also reacted to weak economic data released Thursday.
The Labor Department said initial jobless claims rose 3.59%, to 346,000, last week.
Separately, the Conference Board in New York reported that its index of leading economic indicators fell 0.4%, to a subpar 136.3 reading for November. This came after a 0.5% drop in October.
"The market is clearly in a state of flux," Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners LP, said in an interview Thursday. "Investors are so afraid of how things are going to ultimately play out that we continue to see enormous volatility on any kind of news."
SunTrust Banks Inc. contributed to the gloom Thursday, saying it would set aside $360 million for loan losses in the fourth quarter and warning it would record a writedown of $225 million to $250 million to pay off debt held by a structured investment vehicle.
The Atlanta company also said it would record a pretax writedown of $125 million to $150 million related to the closure of a cash fund. Its shares fell 3.8% on the day.
Other companies punished by the mortgage meltdown continued to lose ground Thursday.
Shares of SLM Holding Corp, after a warning this week that rising borrowing costs would slow profit growth, fell 10.3%.
Green Bankshares Inc. late Wednesday cut in half its fourth-quarter earnings forecast, and its stock plunged nearly 26% Thursday.
Shares of the bankrupt American Home Mortgage Investment Corp. fell 16% Thursday, after sliding 22% the day before.
Even news billed as positive failed to have any bullish effect.
Wells Fargo & Co. reported late Wednesday that it had bought four insurance agencies — Rogers & Belding Insurance Agency Inc. in El Paso; Richardson Group in Dover, N.H.; the employee benefits division of Brehm Group Inc. in Minneapolis; and Technology Insurance Services Inc. in Redwood City, Calif. It has now bought 12 agencies this year, making its insurance division the nation's fifth-largest insurance brokerage. The company said that, with more than 160 offices in 38 states, the division is poised to help Wells bolster revenue growth in 2008.
Despite the news, the San Francisco banking company's stock dropped 0.82% Thursday.
"There's not a lot of conviction on the part of anybody in the market right now," Mr. Fitzgibbon said. "And I think it will be like this until February when we see how bad the wreckage from earnings season really is."