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Stocks Retreat as Shorts Move In on Banks

Stocks wobbled Thursday as investors were encouraged by efforts by Citigroup to boost capital but started cashing in some profits, particularly in sectors that have seen big runups like financials.

And, investors were still digesting the previous days' news that the Federal Reserve was buying huge quantities of government debt.

The Dow Jones Industrial Average and S&P struggled to hold gains, dipping in and out of negative territory. The Nasdaq more solidly held gains after Oracle blew its earnings target out of the water.

This comes after a Fed-fueled rally on Wednesday that boosted all three major indexes more than 1 percent. That brought the S&P's gain to 17.4 percent in the past seven sessions, its best seven-day gain since 1939.

"You have to be a little careful here — we're in overbought conditions according to certain technical things and your 17 percent [in the S&P] is close enough to 18 percent, which is the usual, historic, initial move in a bear-market rally," Art Cashin, director of floor operations at UBS, said this morning on CNBC. "I've got a feeling we may be getting ready to pause here. If I'm wrong, and they blow through the 50-day moving averages, the shorts could panic and we could get an additional real spike. But for now, if I had to make the probability is I'd say a pause in here."

Citigroup and Bank of America rose but other financials declined as short sellers, who bet a stock will go down, moved in on some of the banks.

Citigroup shares gained more than 20 percent, adding to the prior session's 23-percent gain, after the bank offered to do a stock swapthat would boost capital and said it may do a reverse stock split, which would give the U.S. government a 36-percent stake in the bank.

Bank of America also rose, building on its 22-percent gain from Wednesday.

But JPMorgan was the biggest percentage decliner on the Dow. Wells Fargo and US Bancorp also declined.

In economic news, initial jobless claims fell by 12,000 last week to a seasonally adjusted 646,000; well below the 652,000 economists had expected. Meanwhile, continuing claims surged by 185,000 to a record 5.47 million.

The Philadelphia Fed reported its gauge of regional manufacturing activity improved to minus-35 in March from minus-41.3 in February.

Leading indicators fell 0.4 percent in February, a significant drop but still better than the 0.6-percehnt decline economists had expected.

The AIG bonus buzz continued with the Washington Post reporting that the bonuses came after the worst was already over and the company had defused some its most dangerous bets. AIG CEO Edward Liddy said Wednesday in testimony on Capitol Hill that the bonuses were necessaryto keep employees that could help the firm avoid huge losses based mostly on credit defaults swaps.

Some AIG employees are giving their bonuses back, according to the Wall Street Journal.

(Is it time to cash in your chips? Click on the video at left.)

Federal Express shares rose after the package-delivery giant reported its profit tumbled 75 percent and issued a bleak outlook but said it was taking fresh actions to cut costs including decreasing its pension obligations.

Shares of CNBC.com-parent General Electric also gained, topping $11, ahead of an investors meeting at which the company plans a full discourse on its financing arm.

In the tech sector, shares of Oracle shot up after the business software maker handily beat analysts' expectations for quarterly profit and sales after the bell Wednesday and also announced a dividend.

Citigroup raised its target price on Oracle to $21 from $20 and backed its "buy" rating on the stock, citing the fact that margins continue to grow despite slowing sales.

American depositary shares of Research In Motion jumped 5 percent amid buzz that it's launching its apps store later this month and that it's planning to get into the prepaid market later this year, a move that would expand its reach beyond corporate America to younger consumers.

Dow components ExxonMobil and Chevron got a boost as oil prices rose more than $3, topping $51 a barrel.

Still to Come:

THURSDAY: GE to provide details on GE Capital; Earnings from Palm after the bell
FRIDAY: Quadruple witching; Fed's Bernanke speaks about financial crisis at bankers' convention in Phoenix