Calm trading follows rallies

After two days of strong advances, major stock indexes rose modestly Thursday as economic readings painted a mixed picture.

On Tuesday and Wednesday, the market had its biggest two-day rally in five years. Hopes have been growing that financial companies may be starting to recover from the credit crisis and that the Federal Reserve may lower interest rates again to calm the markets.

Wall Street’s anticipation of a rate cut followed comments from a Fed official Wednesday. Fed Chairman Ben S. Bernanke also hinted in a speech Thursday evening that another cut might be needed to bolster the economy.

Aside from a reading on third-quarter growth, economic news didn’t offer investors much reason to cheer.

“The data’s weak and says to us that the Fed needs to stay engaged here,” said Phil Orlando, chief equity strategist at Federated Investors.

The Dow Jones industrial average rose 22.28, or 0.2%, , to 13,311.73. In the three sessions since a pullback Monday, the Dow has jumped 568.29, or 4.5%.

Broader stock indicators also rose. The Standard & Poor’s 500 index edged up 0.70 of a point to 1,469.72, and the Nasdaq composite index rose 5.22 points, or 0.2%, to 2,668.13.

But the Russell 2,000 index of smaller companies fell 3.98 points, or 0.5%, to 766.06. And declining issues outnumbered advancers by about 9 to 7 on the New York Stock Exchange.

Bond yields fell, with the benchmark 10-year Treasury note dropping to 3.94% from 4.04% on Wednesday. The dollar rose against other major currencies, while gold prices declined.

A fire at a pipeline carrying crude oil from Canada to the Midwest caused oil prices to spike early Thursday, though they finished the day with modest gains.

Near-term crude futures soared as high as $95.17 a barrel before finishing at $91.01, up 39 cents, on the New York Mercantile Exchange.

In the stock market, prices fluctuated as investors responded to each new chunk of economic data.

The Commerce Department reported that the economy grew at a 4.9% annual rate in the third quarter, stronger than originally thought, although analysts are anticipating a slowdown in the fourth quarter.

U.S. home prices showed a quarterly decline for the first time in 13 years in the third quarter, according to the Office of Federal Housing Enterprise Oversight, which reported a 0.4% drop nationwide for the July-September period.

The economic reports came as investors awaited clarity on the Fed’s direction on interest rates. In his speech Thursday before the Chamber of Commerce in Charlotte, N.C., Bernanke said Fed policymakers would need to be “exceptionally alert and flexible,” considering that the odds had grown that the country could enter a recession and that a sharp cutback in consumer spending could send the economy into a tailspin.

That comment probably will be viewed as a sign the central bank, which has lowered rates at its last two meetings, may do so again when it convenes Dec. 11.

Wall Street also has been calmed in recent days by evidence that companies hurt by sub-prime mortgage problems can find financial backers to help stem the damage.

In the latest such action, online broker E-Trade Financial said Thursday that Citadel Investment Group would provide $2.5 billion in cash to shore up the company’s balance sheet. E-Trade also said Mitchell H. Caplan had resigned as chief executive.

As part of the deal, E-Trade, which holds billions of dollars in risky mortgage debt, is selling Citadel its entire portfolio of asset-backed securities, which has a face value of $3 billion, for $800 million. E-Trade fell 46 cents, or 8.7%, to $4.82. The stock has declined 79% year to date, making it the worst performer in the S&P; 500 index.

The index’s second-worst performer has been Countrywide Financial, which rose 58 cents, or 6.7%, on Thursday to $9.30. The Calabasas-based mortgage lender’s stock is down 78% this year.

In other market highlights:

* Lehman Bros., the fourth-biggest U.S. securities firm, slid $3.16 to $61.69 after CIBC and Credit Suisse cut their estimates of Lehman’s earnings for the fourth quarter and 2008.

“We anticipate a more protracted environment of credit turmoil,” CIBC said.

* Sears Holdings, parent of its namesake department store chain and Kmart, said earnings plunged, in part because of steep clearance markdowns. The stock fell $12.25, or 11%, to $104.09.

Other retail stocks also fell. Home Depot dropped 39 cents, or 1.4%, to $27.88, the biggest drop in the Dow industrial average. Department store retailer Nordstrom lost $1.46, or 4.2%, to close at $33.72.

* Oil’s rise boosted shares of energy companies. Exxon Mobil rose 67 cents to $88.59 and ConocoPhillips advanced $1.10, or 1.4%, to $78.82.

* TiVo soared $1.48, or 25%, to $7.46. The maker of digital video recorders reported a narrower third-quarter loss than analysts expected, partly because of higher monthly fees from new subscribers.

* Overseas stock markets advanced. Key indexes rose 0.7% in Britain, 0.5% in Germany, 0.7% in France, 2.4% in Japan and 4.1% in Hong Kong.