Stocks were back on the see-saw Wednesday, rising and falling with each new report or flinch in oil prices.
Volume was thin as traders had already begun to filter out for the Fourth of July holiday. The stock market will close at 1pm ET tomorrow and the bond market at 2pm ET. All U.S. financial markets are closed Friday.
Stocks pared morning gains as oil made a quick jump higher after an unexpected draw in crude inventories and by early afternoon, all three major indexes were lower.
The market had opened higher as traders cheered a retreat in oil prices and digested a bleak ADP jobs report. Stocks got an extra boost a half-hour in, when the government reported that factory orders rose 0.6 percent in May, helped by an increase in new aircraft orders. But even without the volatile transportation component, orders were up 0.4 percent, as expected.
Oil prices wavered briefly after the inventories report, but soon moved back above $142 a barrel.
Private employers in June slashed 79,000 jobs from their payrolls, the largest drop in nearly six years, according to a report from ADP Employer Services. Economists had expected a more mild drop of 20,000 jobs. The May number was revised to show a 25,000-job gain, compared with the previously reported 40,000 increase.
The ADP report is closely watched ahead of the government's monthly payrolls report, due out on Thursday, one day earlier than usual due to the July 4 holiday.
"I am definitely looking for a decline in jobs… we are expecting a decline of about 60,000 jobs. I'm actually thinking it might be a little bit friendlier than what the market expects," Donna Heidkamp from RJO Futures told "Worldwide Exchange."
But some economists warned that, as auto makers dropped a batch of awful sales numberson the market on Tuesday, American workers may be in for more trouble ahead.
General Motors skidded 10 percent, making it the biggest drag on the Dow, after Merrill Lynch said the struggling auto maker is going to need to raise $15 billionto quash liquidity concerns and that a bankruptcy filing is "not impossible." The brokerage cut its rating on GM to "underperform" from "buy" and slashed its price target on the stock to $7. Shares were trading between $11 and $12.
Financials were mostly higher, building on the prior session's gains, when the sector ranked No. 1 among 10 key S&P sector indexes. Most regional bank stocks were up about 2 percent, while there were a few pockets of weakness in investment banks.
JPMorgan was the top gainer on the Dow.
The sector got a boost from across the pond, when Deutsche Bank , and UBS said they won't need to raise any more capital.
Merrill Lynch skidded after yet another analyst lowered her estimate.
Oppenheimer analyst Meredith Whitney slashed her second-quarter earnings estimate for Merrill to a loss of $4.21 a share and projected the bank would take $5.8 billion in writedownsfor the quarter. Whitney said she expects the firm to announce plans to raise capital along with its second-quarter report. She also blew out her full-year estimate to a loss of $5.37 a share from her prior estimate of 45 cents a share.
UBS projected Merrill's writedowns for the quarter at $4.5 billion and said Citigroup is likely to face a more severe $8.7 billion in writedowns.
Meanwhile, Microsoft is preparing a new bid for Yahoo's search business and has approached other media companies about joining it in a deal that would effectively lead to Yahoo's breakup, the Wall Street Journal reported.
Shares of UnitedHealth Group, which have fallen more than 50 percent this year, ticked higher the nation's largest health insurer slashed its full-year outlook and said it would pay more than $900 to settle options-related litigation.
Shares of the coffee maker have fallen 23 percent in 2008.
(Click on the video at left for four stock picks for the Fourth of July.)
Mortgage applications rose 3.6 percent for the week ending June 27, welcome news for an industry that saw activity slow to 6 1/2-year lows recently.
Elsewhere in the economy, talk about possible rate rises came from one Federal Reserve official.
"Let me emphasize that I'm taking the recent inflationary pressures very seriously," Federal Reserve Bank of Atlanta President Dennis Lockhart said, quoted by Reuters.
The economy is facing a tough second quarter and Europe will not be immune to the impact from across the ocean, Treasury Secretary Henry Paulson said.
"There's no doubt that the second quarter will be a tough quarter," Paulson told the International Herald Tribune.
Blockbuster shares surged after the video-rental chain said it is withdrawing its proposal to buy Circuit City Stores, which saw sales tumble this year. Shares of Circuit City stumbled.
Shares of Apollo Group, parent of the University of Phoenix, shot up after the company posted better-than-expected earningsa day earlier, citing an 11-percent jump in enrollment. Analysts said the report was strong across the board.
Starbucks said on Tuesday it plans to close 600 underperforming U.S. stores and cut up to 12,000 full- and part-time positions, as it copes with an economic downturn and increasing competition.
Asian stocks fell and European stock markets were mixed one day ahead of rate-setting meetings by the European Central Bank and the Bank of England.
THURSDAY: Jobless claims, Jobs report, ISM services index; Stock market closes at 1pm ET and bond market closes at 2pm ET
FRIDAY: All major U.S. markets closed for Fourth of July holiday
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