NEW YORK - Financial markets were tense Wednesday, with stocks fluctuating on investor Warren Buffett's decision to invest $5 billion in Goldman Sachs Group Inc. The credit markets showed added strain as investors await news about the government's plan to rescue banks from crippling debt.
Buffett's Berkshire Hathaway Inc. said Tuesday it was investing at least $5 billion in Goldman — a move Wall Street took as sign of support for the independent investment bank model. Besides buying $5 billion in preferred stock, Berkshire also got warrants to buy another $5 billion in Goldman's common stock.
Goldman Sachs also said it will sell $5 billion worth of common stock to the public; the company and Morgan Stanley earlier this week were granted approval to become bank holding companies, which would help them strengthen their balance sheets.
Though Buffett's move appeared to soothe some investors, it didn't alleviate concerns about the effectivenes of any government bailout and about the health of the broader economy. It could also lead to new questions from lawmakers for Treasury Secretary Henry Paulson, a former co-CEO of Goldman Sachs. He and Federal Reserve Chairman Ben Bernanke are appearing before Congress for a second day Wednesday to brief lawmakers on a $700 billion bailout measure for financial services firms.
Their appearance on Capitol Hill Tuesday unnerved investors, who questioned whether lawmakers were beginning to doubt the necessity and form of the government bailout.
The waiting was clearly wearing on the credit markets, raising concern again about liquidity.
Demand for short-term government Treasuries increased as investors again sought safe places to keep cash. The yield on the 3-month Treasury bill, considered the safest short-term financial asset, was at 0.43 percent early Wednesday, down from 0.79 percent late Tuesday. Last week, demand spiked so high that the3-month bill's yield briefly dipped into negative territory; investors were so focused on putting their money in safe assets that they have been willing to accept very little or even negative returns.
In other Treasury trading, the yield on the benchmark 10-year Treasury note fell to 3.78 percent from 3.80 percent late Tuesday.
In midmorning trading, the Dow Jones industrial average rose 26.60, or 0.25 percent, to 10,880.77 after moving in and out of positive territory. The Dow is down more than 500 points, or about 4.7 percent, for the week.
Broader stock indicators were mixed. The Standard & Poor's 500 index rose 5.30, or 0.45 percent, to 1,193.52, and the Nasdaq composite index rose 21.22, or 0.99 percent, to 2,174.55.
The dollar, whose struggles earlier this week contributed to extreme volatility in other markets, was mixed, falling against the euro but rising against the Japanese yen. Meanwhile, gold prices rose.