Stocks ended a seesaw trading session mixed as a recovery in financial stocks and a rally in the tech sector were offset by uncertainty of the future of the U.S. economy.
"The problem right now is that you can't be real negative on the market because the Fed could ease at any moment, given how seized up the commercial paper market is," said Tony Dwyer, equity market strategist at FTN Midwest Securities.
"But you don't want to get too long because ... this is a real fundamental issue, working capital is tough to get and it's creating an economic implication," said Dwyer.
Market strategists and economists continued to debate the possibility the U.S. may be headed towards an economic recession.
"People are throwing around the recession word and acting like it's a foregone conclusion whereas a few weeks ago they wouldn't have," said Dan McMahon, head of listed trading at CIBC World Markets. "There is just a lot of concern about the direction of the U.S. economy."
The Federal Reserve's Open Market Committee will vote on interest rate policy on Sept. 18.
"More than likely we will avoid a recession," said Jim O'Sullivan, senior economist at UBS. "The question now is whether the Fed will cut by 25 or 50 basis points ... that's certainly the debate now. We still say the odds favor a 25 basis point cut."
The major indexes opened higher after chip giant Intel raised revenue guidance. Shares rose after the No. 1 semiconductor maker announced third-quarter revenue would be between $9.4 billion and $9.8 billion on stronger-than-expected worldwide demand.
"I think you have to assume they lower it, the only question is whether they lower it a quarter-point or half a point," said Patrick Fay, director of equity trading at DA Davidson. "I can't see the Fed just cutting by a quarter-point, that's just slow water torture and they want to get this thing jumpstarted."
With the earnings and economic calendars practically clear, trading could be choppy, with concerns about the state of the U.S. economy persisting. On Friday, the Labor Department reported the first contraction in monthly nonfarm payrolls in four years, sending shares sharply lower.
"The market is trying to do better but we don't have a lot of heavy duty data this week," said Art Cashin, director of floor operations at UBS Securities. "We have a lot of Fed speak, including Bernanke tomorrow."
Cashin noted that traders are closely watching the commercial debt market as more than $120 billion in corporate bonds will need to be rolled over.
"This seems to be the fever point for the whole credit market," Cashin said.
News of problems caused by the subprime crisis and subsequent credit crunch continues to roll in as Kohlberg, Kravis Roberts is ready to make concessions to the Wall Street banks providing the financing for its takeover of First Data , specifically placing performance criteria on First Data's debt to make it more attractive, the Wall Street Journal reported.
And about six states are now involved in an investigation of agencies and banks that benefited from subprime lending, Reuters reported.
Home Depot agreed to buy back more than 289 million shares of its common stock for $10.7 billion under a tender offer that expired on Aug. 31. As a result of the buyback, the company now expects fiscal 2007 earnings per share to decline between 7% and 9%, compared with its previous estimate of 12% and 15%.
Apple helped lift the technology sector a boost after the company said on Monday that Sunday marked the sale of the one-millionth iPhone.
Countrywide Financial fell more than 5% after the company said last Friday after the close of trading it would slash its workforce by up to 20% due to weakness in the home mortgage market. UBS lowered the price target on the stock to $20 from $31 and cut its 2007 and 2008 earnings forecasts to reflect production declines.
Prices on the benchmark 10-year Treasury rose, pushing yields lower.
In other corporate news, Walt Disney plans to start testing its own testing of toys featuring Disney characters for lead, the New York Times reported.
And despite a current strategic review, a major overhaul of Internet portal Yahoo is unlikely, the Journal said.
Major European markets traded mostly flat on Monday as concerns about Friday's weak U.S. jobs report and the prospect of a recession in the world's largest economy still made investors cautious about stocks.
London's FTSE-100 traded slightly higher in the morning, after a report showed U.K. companies' costs fell more than expected in August while factory prices rose in line with expectations. Germany's DAX and France's CAC-40 were also trading near the unchanged mark.
Asian markets closed broadly lower on Monday, with exporters hit hard on concerns the U.S. economy may be heading into a recession.
Japan's Nikkei 225Average declined 2.2% after worse-than-expected U.S. and Japanese economic data took its toll. Eporters such as Sony hit especially hard by a stronger yen.
Meanwhile, South Korea's KOSPI finished down 2.6% -- its worst fall in three weeks -- as exporters slid after unexpectedly weak U.S. jobs data raised concerns about the outlook for South Korea's second-biggest overseas market. LG.Philips LCD fell 4.9% while Hyundai Motor lost 4.3%.