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Wall Street points lower after surge a day earlier

NEW YORK – Wall Street headed for a pullback at the opening of trading Tuesday as investors reassessed the market’s strength a day after its biggest advance in five months.

Some pullback was to be expected after the Dow Jones industrial average jumped 498 points, or 6.8 percent. Investors had extended a two-week rally as the government detailed a plan to take over up to $1 trillion in bad mortgage securities with the help of private investors. An unexpected rise in home sales also lifted the mood of traders.

With little economic data to go on, investors will again be looking to Washington for direction. The Federal Reserve’s chairman and the secretary of the Treasury are making a rare joint appearance at a congressional hearing to testify over bonuses at American International Group Inc.

They are also expected to face questions on details of the bad debt plan and likely will ask Congress for legislation that would allow the government to safely dismantle a big financial player, like AIG, without risking damage to the financial system.

Phil Orlando, chief equity market strategist at Federated Investors in New York, said investors are pleased by the moves out of the Treasury and Fed but that they will need to see some signs that the economy is improving for the market to hold onto the gains. He said renewed worries about trouble spots like unemployment could shake investors.

“I can absolutely expect some profit-taking here,” Orlando said. “We are treating this cautiously as we recognize that there are still some storm clouds on the horizon.”

Dow Jones industrial average futures fell 77, or 1 percent, to 7,635. Standard & Poor’s 500 index futures fell 8.50, or 1 percent, to 808.80, while Nasdaq 100 index futures fell 6.50, or 0.5 percent, to 1,245.50.

On Monday, the Dow and the S&P 500 posted their biggest percentage gains since Oct. 28. The market’s reaction to the announcement was a departure from last month, when stocks tumbled after Geithner announced the bad asset program but offered few details about how it would work. Stocks tumbled at that time, sending the Dow down by more then 380 points.

While some retrenchment might be expected Tuesday as the market as part of the normal ebb and flow of the market some analysts warn that stocks could find it harder to extend their gains now that they’ve risen about 20 percent from March 9, when the Dow and the S&P finished at their lowest levels in about 12 years.

Earlier advances, like a 20 percent rise from late November to January, eventually fizzled as fresh worries about the economy dogged traders.

In the latest run, large financial stocks are up 54.5 percent from their lows only two weeks ago. For the recovery to continue, investors will be looking for further signs that banks could begin to patch holes in their balance sheets. Traders are hoping the government’s plan will help vacuum up the corrosive debt.

But many analysts say investors also say some stabilizing in the overall economy is necessary for banks to regain their footing. There are still plenty of worries: The unemployment rate sits at 8.1 percent, the highest level since the punishing recession of the early 1980s. And housing prices continue to fall, putting more homeowners at risk of owing more on their homes than they are worth. Falling home values could produce more of the bad mortgage debt that is at the center of the financial crisis.

More broadly, analysts note it won’t be easy to wean the economy from a diet of excessive debt. Businesses and consumers are struggling to pay down what they owe. To do so they’re cutting spending, which is hurting other parts of the economy.

One thing that could help the market is that expectations are so low. On Monday, investors pounced on a report showing pending home sales jumped in February. Wall Street had expected they would fall. Otherwise weak economic readings have surprised investors in recent weeks and helped feed the rally. Reports on retail sales, housing starts and inflation have all topped traders’ bleak expectations.

Investors also will examining banks again Tuesday. Goldman Sachs Group Inc. is considering selling part of its minority stake in Industrial & Commercial Bank of China Ltd., according to a Wall Street Journal report. The move could allow Goldman to help pay off $10 billion in federal bailout funds, according to The New York Times.

Bond prices fell early Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.72 percent from 2.68 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.22 percent from 0.21 percent Monday.

The dollar was mixed against other major currencies, while gold prices fell.

Oil fell 71 cents to $53.10 a barrel in electronic trading on the New York Mercantile Exchange.

Overseas, Japan’s Nikkei stock average rose 3.3 percent. In afternoon trading, Britain’s FTSE 100 fell 1.1 percent, Germany’s DAX index rose 0.2 percent, and France’s CAC-40 rose less than 0.1 percent.



New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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