Stocks Slip Ahead of Close; Banks Gain

Stocks lost some ground in the final minutes of trading Wednesday as investors took a breather following a sharp rally in the previous session and after existing home sales tumbled unexpectedly to a seven-month low.

The Dow Jones Industrial Average see-sawed for most of the day, after ending sharply higher in the previous session.

United Tech and Microsoft fell, while BofA gained.

The S&P 500 and the tech-heavy Nasdaq were mixed. The CBOE Volatility Index, widely considered the best gauge of fear in the market, slipped below 19. Despite the lackluster market, the Dow and S&P are still on pace for their best weekly gain in three weeks.

Among key S&P sectors, consumerdiscretionary and staples were the biggest laggards, while financials were higher.

“This is a bipolar market,” said Alan Valdes, director of floor operations at DME Securities. “If there’s anything you can be sure of, it’s volatility and that’s where you’re going to make your money.”

Valdes said traders are focusing on the ongoing European debt crisis and the ongoing debt talks in the U.S.

“And there continues to be no volume, so it’s just traders,” he added.

Financials rebounded after being the worst-performing sector in the last few sessions. Bank titans BofA and Goldman Sachs were trading to the upside even after a handful brokerages cut their price targets on the firms following disappointing earnings reports.

"Looks like financials have been so beaten up and people are looking for an opportunity to buy," according to Kenny Polcari, managing director of ICAP Equities.

Also, European banks jumped after a report that the euro zone bailout fund (EFSF) could be allowed to extend credit lines to countries and buy bonds in the secondary markets.

Meanwhile, Wells Fargo remained higher even after the Federal Reserve issued a $85 million penalty against the companyover allegations a subsidiary steered borrowers toward subprime mortgages with higher interest rates.

Among earnings, Apple surged after the iPod maker beat earnings expectations on Tuesday afternoon and hinted at a new product launch, which most analysts believe to be a new iPhone. At least nine brokerages raised their price targets on the firm.

However, Yahoo tumbled to lead the S&P laggards after the Internet firm reported a decline in revenue and revealed new challenges that hurt its display advertising business. At least five brokerages lowered their price target on the firm.

BlackRock and USBancorp rose after both firms posted earnings that beat expectations.

Abbott Laboratories slipped, even after the pharmaceutical company reported better-than-expected earningshelped by strong sales growth in emerging markets.

Johnson Controls fell even after the auto parts maker reported a stronger-than-expected profit thanks to a fast recovery from the impact of the Japanese earthquake.

American Express , Intel , Qualcomm , ETrade and Ebay among others are slated to post earnings after-the-bell tonight.

Meanwhile, ETrade jumped after Citadel, the firm's biggest shareholder, urged the financial services firm to explore a possible sale.

AMR advanced after the parent of American Airlines said it plans to purchase 460 narrowbody Boeing 737s and Airbus EADS A320s from 2013 through 2022.

Clorox jumped after billionaire investor Carl Icahn raised his offer to buy the household products company to $80 a share from $76.50 after the company rejected his previous offer.

News Corp continued to gain after Rupert and James Murdoch testified to a UK parliamentary committee on the phone hacking scandal. Analysts pointed to a relief rally that the hearing did not uncover anything too damaging.

Oil prices advancedfollowing a report that the IEA is unlikely to release more crude stocks into the market. U.S. light, sweet crude gained 54 cents to settle at $98.40, while London Brent crude rose above $118.

On the M&A front, Nalco surged more than 20 percent after Ecolab said it would purchase the water treatment company for $5.4 billion.

Shares of high-profile real-estate website Zillow more than doubled in price and headphone maker SkullCandy's shares gained in their initial public offerings, after both debuted well above their expected ranges.

On the economic front, existing home sales unexpectedly tumbled to a seven-month lowin June as cancellations of pending contracts soared, according to the National Association of Realtors.

Meanwhile, mortgage applications surged last week, marking the biggest increase in four months amid a flood of refinancing demand as interest rates remained low, according to the Mortgage Bankers Association.

The House passed a bill to raise the debt ceilingon Tuesday evening on condition of caps on current and future spending, but questions remain over whether bill will be approved in the Senate. However, some traders remain skeptical that any deal forged will merely be a temporary solution.

German Chancellor Angela Merkel meets French President Nicholas Sarkozyin Berlin ahead of another meeting of European leaders to find a solution to Greece’s debt crisis. Merkel has already dampened expectations, saying the meeting will not yield a “spectacular” solution that will solve everything.

Coming Up This Week:

WEDNESDAY: Earnings from AmEx, Intel, Qualcomm and Ebay
THURSDAY: Weekly jobless claims, leading indicators, Philadelphia Fed survey, money supply, Bernanke speaks; Earnings from AT&T, Morgan Stanley, Nokia, PepsiCo, Freeport McMoran, Travelers, Mircrosoft, AMD and SanDisk
FRIDAY: No major econ. news expected; Earnings from Caterpillar, GE, McDonald's, Schlumberger, Verizon, Honeywell

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