Stocks pared their losses Wednesday as investors were encouraged by progress on bailout talks on Capitol Hill.
The Dow Jones Industrial Average was down less than 50 points, after earlier being down about 200.
General Electric, parent of CNBC, pared its loss following news that Warren Buffett will buy a $3 billion stake in the conglomerate in a deal reminiscent of Buffett's investment in Goldman Sachs last week. In fact, Buffett said it's "almost identical" to the Goldman deal.
"I'm confident GE will continue to be successful," Buffett said.
Buffett "bought [Goldman Sachs] GS, now it's GE. Is he going to go for GM next?" Joe Saluzzi, co-manager of trading at Themis Trading, told Reuters. "These are one of those signs when you are looking for a market bottom. You want smart money to come in and say 'I'm coming in there and putting my money down.'"
Earlier, GE shares were the biggest drag on the Dow after Deutsche Bank lowered its price target on the stock and earnings outlook for the company, citing the drag of GE's finance arm, which does everything from loans to mid-sized businesses to investments in real estate.
General Motors shares advanced after the auto maker reported its U.S. sales fell 16 percent in September, a smaller drop than than expected, helped by an employee-pricing offer. Rival Ford said its sales tumbled 34 percent.
The Senate is expected to vote on a new version of the $700 billion bailout billtonight. The unusual time was set in deference to Rosh Hashanah, the Jewish new-year holiday, which ends at sundown today.
Meanwhile, House Republicans are working on an alternative bailout package.
But there was a lot on investors' minds today, including strained credit markets and dismal economic news.
The strain in the money markets worsened with overnight dollar rates rising as high as 6 percent, Reuters reported citing traders in Asia, making it even tougher for banks to secure day-to-day funding.
On the economic front, the Institute for Supply Management reported its gauge of manufacturing activity contracted for a second monthto its lowest level since October 2001. Measures of employment and exports fell sharply. A separate report showed construction spending was unchanged in August.
The ISM data "indicate the U.S. economy is contracting," Tony Crescenzi of Miller Tabak wrote in a note to clients, and "increase the odds of more Fed rate cuts, including the possibility of an intermeeting cut."
Meanwhile, private U.S. employers clipped 8,000 jobs from their payrollsin September, a surprisingly low figure, ADP reported. And mortgage applications dropped to their lowest in a month, the Mortgage Bankers Association said, amid anxiety about the health of the economy.
Crude oil fell below $97 a barrel after a report showed crude inventories rose by 4.3 million barrels, more than expected.
The Dow, Nasdaq and S&P 500 jumped higher Tuesday, but only managed to regain around half of their severe losses from Monday, when the bailout package was snarled in political wrangling and doubts over its effectiveness surfaced.
Hedge-fund managers will get their report cards later as a wave of investors are expected to demand their investments back after disappointing returns from the sector. The funds are holding record levels of cash to meet a flood of redemptions as the end of the month and quarter results are released.
Big banks recovered, with Goldman Sachs and Morgan Stanley higher. Even American depositary shares of UBS rose; earlier, the bank said it said it was cutting 1,900 jobs.
Shares of regional banks were mixed: National City and Sovereign Bancorp advanced, while State Street declined. Genworth Financial and Sallie Mae also declined.
(What's going to happen when the short-selling ban ends tomorrow? Click on the video at left.)
Google shares rose 3 percent Wednesday. The stock was reset at $400.52 after Nasdaq canceled "erroneous orders" that sent the stock down to $341.43 late Tuesday.
It's already time to start thinking about the holiday-shopping season, and Wal-Mart was out front, announcing price cuts on toysto win over cash-strapped consumers. The discount retailer said it will offer ten toys, including certain Barbie dolls and Tonka trucks, for under $10.
WEDNESDAY: Auto sales; weekly crude inventories; Eid (Muslim) holiday
THURSDAY: Short-selling ban expires at 11:59 pm ET; ECB announcement; jobless claims; factory orders; natural-gas inventories; Fed's Bullard speaks; earnings from Constellation Brands
FRIDAY: August jobs report; ISM services index; earnings from Family Dollar
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