Stocks fluctuate after lackluster earnings reports

Investors traded stocks cautiously Tuesday as lackluster corporate results renewed questions about how quickly the economy can recover from the recession.

Wall Street fluctuated as traders watched bank stocks for signals about the market’s direction. Some back and forth was expected after heavy selling Monday and a flurry of corporate comments about the economy.

Bank of New York Mellon Corp., Caterpillar Inc. and drugmaker Merck & Co. posted results or issued forecasts Tuesday that fell short of what the market expected. Wall Street is uneasy because analysts had set expectations low after a bruising January in which fourth-quarter results short-circuited a stock market rally.

In midmorning trading, the Dow Jones industrial average fell 26.61, or 0.3 percent, to 7,815.12.

Broader stock indicators were mixed. The Standard & Poor’s 500 index fell 2.59, or 0.3 percent, to 829.80, and the Nasdaq composite index rose 6.39, or 0.4 percent, to 1,614.60.

Bank of New York Mellon’s first-quarter earnings fell a steeper-than-expected 57 percent. The company said it was slashing its dividend to boost capital. The stock fell $4.01, or 14.3 percent, to $24.02.

Construction equipment maker Caterpillar posted better-than-expected earnings but reduced its forecast. The stock fell 83 cents, or 2.7 percent, to $29.65.

Merck reported a 57 percent drop in first-quarter earnings because of a slide in both sales of its drugs and income from its partnership on cholesterol medicines. Merck fell $1.82, or 7.2 percent, to $23.40.

The reports and forecasts follow a drop of more than 3 percent in Wall Street’s major stock indicators Monday. Analysts said some pullback was in order after stocks surged more than 20 percent from 12-year lows in March. But Bank of America Corp.’s earnings report on Monday touched off renewed fears about rising levels of bad debt. Traders grew worried that economy might not be stabilizing as hoped.

Subodh Kumar, an independent investment strategist in Toronto, said the cautious comments from companies in a range of industries are underscoring the difficulties facing much of the economy.

“This is still a very tough business environment. The market was essentially ahead of itself,” he said, referring to the extent of the recent advance.

Doug Roberts, chief investment strategist,, said the string of earnings reports are clouding the market.

“People are kind of going day to day,” he said. “Everybody is hesitant to take too big of a position given the uncertainty of the environment.”

Wall Street could get more insight into the troubles at financial companies Tuesday when Treasury Secretary Timothy Geithner appears on Capitol Hill to face questions about his plans to stabilize banks. Geithner is scheduled to testify before the Congressional Oversight Panel for the government’s $700 billion financial rescue program.

A watchdog agency warns that Obama administration initiatives could increasingly expose taxpayers to losses.

Geithner said in a letter to Elizabeth Warren, head of the Congressional Oversight Panel, on Tuesday that $109.6 billion in resources remain in the government’s $700 billion financial rescue fund. Officials expect the fund will be boosted over the next year by about $25 billion as some institutions pay back money they have received. That would leave the fund with $134.6 billion.

Investors’ worries about banks Tuesday aren’t likely to ease soon.

“Nothing has been remedied in the banking sector,” said Dave Rovelli, managing director of trading at brokerage Canaccord Adams. “A lot of these banks, they’re basically making money only because they’re getting money from the government for free.”

In other corporate news, DuPont said its first-quarter profit dropped on falling demand. The chemical company also cut its full-year forecast and said it will increase its efforts to cut fixed costs. DuPont rose $1.05, or 3.9 percent, to $27.79.

Light, sweet crude fell $1.04 to $44.84 a barrel on the New York Mercantile Exchange.

The dollar slipped against other major currencies while gold prices jumped.

Overseas, Japan’s Nikkei stock average fell 2.4 percent. In afternoon trading, Britain’s FTSE 100 fell 1.5 percent, Germany’s DAX index fell 0.8 percent, and France’s CAC-40 fell 1.3 percent.

Copyright 2009 The Associated Press.