Wall Street Hangs Tough Despite Mortgage Crises

Wall Street pulled off a dramatic late-session turnaround to close Thursday after bargain hunters lured by weeks of massive declines came back to the stock market.

The Dow Jones industrial average, down more than 340 points in afternoon trading, ended the day with a loss of just 15.

The market appeared to be on an almost relentless downward spiral after problems at Countrywide Mortgage confirmed investors’ fears that credit problems are spreading.

In spite of the big comeback, most of which came in the final hour, Wall Street is still an uncertain place, having been pounded by weeks of losses including triple-digit slides in the Dow.

All three of the market’s big indexes reached levels Thursday where they were down 10 percent from their mid-July highs - the definition of a stock market correction.

Some analysts were hopeful. Still, while the market has seen big gains over the past few weeks, those gains quickly evaporated the next day.

Bonds continued their rally as investors fled to safer securities.

The yield on the benchmark 10-year Treasury note dropped to 4.66 percent from 4.72 percent late Wednesday. Yields had been as low as 4.60 percent earlier in the session, but began to reverse as stocks rebounded.

Investors have also been hoping that policy makers might lower interest rates to help bolster the economy, a positive step for Treasurys.

The likelihood of a rate cut before, or at, the next Fed meeting seemed less likely as the central bank instead chose to add more liquidity to the market.

Central banks around the world have been supplying billions to banks in the past week to make cash available for home loans and keep interest rates from rising amid signs that credit is drying up.

The Fed left interest rates unchanged at its last meeting at 5.25 percent, where it has stood since last summer. As a result, mortgage rates remain low.

However, policymakers said during their commentary that inflation continues to be a worry, and also recognized the debt and credit crunch for the first time.

“I think there is more confidence of a lasting rally in equities if the Fed cuts rates, and that makes it easier on days like this to do bargain hunting,” said John Lonski, chief economist for credit-rating agency Moody’s Investors Service.

“The more investors sense that the U.S. economy can shoulder losses arising from [bad credit mortgages], the closer we are to stabilization.”

Countrywide fell $2.34, or 11 percent, to $18.95 after the home loan lender borrowed $11.5 billion from a group of 40 banks to fund loans, in a move that shows just how deep the lending crisis has become.

The mortgage company has been slammed as the credit crunch has driven a number of its smaller peers to bankruptcy.

But, there appeared to be renewed sense that bigger financial institutions would be able to withstand troubles in the mortgage industry.

Delinquencies and defaults among risky home loans have seeped into the market, where mortgage-backed securities have suffered.

Continue reading this Yahoo! Finance report from last week on Wall Street and its continuing battle with subprime lending…