Stocks end day mixed as Fed decision looms

Wall Street turned in a mixed performance Tuesday as investors remained cautious as they awaited the Federal Reserve’s decision today on interest rates.

The Fed, facing a faltering economy but also rising inflation, is expected to cut its key interest rate to 2% from 2.25% as its two-day meeting concludes. Many investors believe that policymakers will signal that they are planning to hold rates steady for a while.

Consumers have been worried about inflation because it means energy and grocery bills are higher. Wall Street also is concerned because inflation tends to curtail consumer spending, which accounts for more than two-thirds of the U.S. economy.

The Conference Board said Tuesday that its April index of consumer confidence fell for the fourth straight month because of heightened disappointment about soaring prices and the weakening job market.

“There’s no panic out there [in the market] because of the consumer confidence numbers, but there is more concern about inflation than we had just a few weeks ago,” said Jim Herrick, director of equity trading at Baird & Co.

The Dow Jones industrial average fell 39.81 points, or 0.3%, to 12,831.94.

The biggest drag on the Dow was the component Merck, which sank $4.30, or 10.4%, to $37.14 after saying the Food and Drug Administration refused to approve a new cholesterol drug called Cordaptive.

Broader markets were mixed. The Standard & Poor’s 500 index dropped 5.43 points, or 0.4%, to 1,390.94, and the Nasdaq composite index rose 1.70 points, or 0.1%, to 2,426.10.

Bond prices were little changed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was at 3.82%, down from 3.83% late Monday.

A pullback in oil prices Tuesday eased inflationary concerns a bit and helped keep the stock market from tumbling sharply. But some analysts say the market has been deceptively calm in recent weeks given the weakness of the economy and how consumers are struggling not only with a slumping housing and job market but also high prices.

“So far, investors have bought into the notion that the Federal Reserve has staved off a wider calamity, when in fact what they’ve done is allow the financial system to stay afloat as they work down, write down, a tremendous amount of bad debt,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

Slashing the key rate by more than half since last summer has not trickled down to consumers’ borrowing rates, he noted, and has hurt the dollar.

“It has translated to spikes in food and energy costs for the public at exactly the wrong time,” Battipaglia said.

But on Tuesday key commodity prices slid. Oil prices fell amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened further against the euro, which fell 0.003 to $1.556.

Light, sweet crude for June delivery fell $3.12 to $115.63 a barrel on the New York Mercantile Exchange. In other commodities trading, gold fell $18.70 to $874.20 an ounce.

Falling energy prices helped lift airline stocks.

Continental Airlines rose 60 cents, or 3.5%, to $17.56, and Southwest Airlines rose 43 cents, or 3.3%, to $13.34. AMR, parent of American Airlines, rose 79 cents, or 10.2%, to $8.53 after Citigroup analyst Andrew Light said the carrier stood to gain from industry consolidation even though the company itself is unlikely to merge.

But Wall Street was pressured by a report from research firm RealtyTrac that showed the number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier.

And earnings reports came in mixed.

On the positive side, Lear reported a rise in first-quarter profit, lifted its 2008 sales outlook and backed its earnings prediction for the year. The auto supplier rose $5.08, or 19.2%, to $31.50.

MasterCard surged $31.48, or 13%, to $273.98 after reporting that profit more than doubled in the first quarter, and rival Visa rebounded from an early decline to rise $5.25, or 6.9%, to $80.88 after reporting late Monday that its first-quarter profit increased 28%.

Both companies said card use rose moderately in the U.S. and quickly abroad.

But profit woes are not over for financial institutions.

Countrywide Financial, the nation’s largest mortgage lender and servicer, said it lost $893 million during the first quarter from a sharp increase in its provisions for unpaid home loans. The latest results marked the third consecutive quarterly loss for Countrywide, which agreed in January to sell itself to Bank of America for about $4 billion in stock.

Shares of the lender rose 2 cents to $5.85, while Bank of America fell 32 cents to $37.86.

The Russell 2,000 index of smaller companies fell 6.44, or 1.9%, to 718.93.

Declining issues surpassed advancers by about 10 to 7 on the New York Stock Exchange.

Overseas, Japan’s Nikkei stock average rose 0.2%. Britain’s FTSE 100 was down fractionally, Germany’s DAX index fell 0.6% and France’s CAC-40 declined 0.7%.