Stocks finish slightly lower

The stock market ended a mildly erratic day slightly lower Thursday after anxiety about credit problems offset investor optimism about a $2-billion infusion into troubled mortgage lender Countrywide Financial.

Bank of America announced late Wednesday that it would buy a chunk of convertible preferred shares in the nation’s largest mortgage lender, which has been squeezed by a lack of funding.

The investment was seen as a way to not only prop up Countrywide but also prevent any further troubles at the mortgage lender from hurting the underlying economy.

Countrywide Chief Executive Angelo R. Mozilo expressed his optimism about the deal in an interview on CNBC on Thursday, but when asked whether the housing slump could cause a recession, he answered in the affirmative.

Mozilo’s comments “probably didn’t help” the market, said Jim Herrick, manager and director of equity trading at Baird & Co.

The Federal Reserve’s moves to ease the market’s credit concerns, including cash injections into the banking system and a lower interest rate on loans by the Fed to banks, have had some palliative effect on Wall Street, evidenced by the ebbing of the extreme volatility of recent weeks.

But the Fed’s moves and Bank of America’s investment in Countrywide could be seen as “a Band-Aid approach to a bigger problem,” Herrick said, “The big unknown is how widespread this problem is.”

The market showed little response Thursday to the Fed’s infusion of an additional $17.25 billion into the banking system to help boost liquidity, adding to the $41.25 billion the central bank has injected since the beginning of last week.

The Dow Jones industrial average, which had been up 62 points early on, closed down 0.25 of a point at 13,235.88. The Standard & Poor’s 500 index fell 1.57 points, or 0.1%, to 1,462.50, and the Nasdaq composite index dropped 11.10 points, or 0.4%, to 2,541.70. The Russell 2000 index of smaller-company stocks fell 10.31 points, or 1.3%, to 788.25.

Advancing issues narrowly outnumbered decliners on the New York Stock Exchange.

Government securities were mixed. The 10-year Treasury note’s yield slipped to 4.64% from 4.65% late Wednesday, but the three-month Treasury bill’s yield surged to 3.90% from 3.66%.

Oil futures rose 57 cents to $69.83 a barrel on the New York Mercantile Exchange. Gold fell slightly and the dollar was mixed against other major currencies.

The Fed’s cut last Friday in the discount rate, the interest banks pay to borrow directly from the central bank, did little to alleviate concern about distressed sub-prime mortgages and a difficult credit environment, although it did help reduce the volatility that has buffeted the stock market over the last month.

Many investors are hoping that the Fed will take the more dramatic step of lowering its benchmark federal funds rate, which has more influence on the interest rates paid by companies and consumers.

Analysts say the markets are expected to be choppy until Wall Street gets a clearer picture about the Fed’s intentions when it meets Sept. 18.

“Moving up or down a little is OK because I think investors need some time to digest all the news out there, and they are still really hoping the Federal Reserve will lower interest rates,” said Neil Massa, an equity trader at John Hancock Funds. “You’re not seeing the rush to sell, nor the panic buying, that we’ve had before.”

The Countrywide deal could ultimately give Bank of America a 16% stake in Countrywide’s common stock. Bank of America shares rose 18 cents to $51.93, while Countrywide shares closed up 20 cents at $22.02 after trading as high as $24.46.

In other market highlights:

* Industrial stocks surrendered some of their recent gains as economic worries resurfaced. Aircraft maker Textron fell $2.35, or 2%, to $113.74, Eaton lost $1.70 to $91.66 and Bucyrus was down $1.44 to $62.53.

* Merrill Lynch downgraded a number of regional banks, citing concerns that credit-market upheaval could hurt the companies’ earnings growth. Among Los Angeles-area banks, Merrill downgraded City National and Cathay General both to “sell” from “neutral.” City National fell $1.77, or 2.4%, to $72.55; Cathay dropped $2.11, or 6%, to $33.10.

* Some major tech issues closed higher. Hewlett-Packard gained $1.23, or 2.7%, to $47.65, IBM added $1.45, or 1.3%, to $111.45 and Agilent was up 26 cents to $34.64.

* Hormel Foods rose 39 cents, or 1.1%, to $34.79 after the company said it reaffirmed its earnings forecast for the fourth quarter and fiscal 2007.

* Smithfield Foods climbed $2.49, or 8.3%, to $32.58. The company said fiscal first-quarter profit more than doubled.

* Beverly Hills-based Live Nation jumped 92 cents, or 4.5%, to $21.16 after Ticketmaster said it was unlikely to reach a new long-term deal with the concert promoter. Ticketmaster owner IAC/InterActive fell 28 cents, or 1%, to $27.19. Live Nation is the ticket vendor’s biggest customer.

* Teen-apparel retailer Hot Topic sank 79 cents, or 9%, to $7.96 after the City of Industry-based company reported a second-quarter loss and offered a lackluster outlook.

* Imax rose 17 cents, or 4.6%, to $3.89 after Roth Capital Partners upgraded the owner of movie projection systems used on giant screens.

* Overseas, key stock indexes surged 2.6% in Japan and 2.8% in Hong Kong, rose 0.2% in Germany and 0.1% in France, and edged up in Britain.