Stocks try to stabilize

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NEW YORK ( -- Stocks cut losses Thursday morning, turning mixed, as stocks bounced after touching key levels not seen in nearly six years.

The Dow Jones industrial average (INDU) lost 0.3% over 90 minutes into the session, hampered by a plunge in GM and Citigroup.

The Standard & Poor's 500 (SPX) index lost 1% and the Nasdaq composite (COMP) gained 0.4%.

Stocks slumped through the morning after a report showed the highest level of weekly unemployment claims in 16 years, underscoring the depth of the recession.

But the major gauges managed to cut losses and briefly turn higher after the S&P 500 dropped to the lowest level since Oct. 10, 2002. That date is considered important on a technical basis for all three major gauges, as it marked the bottom of the last bear market.

Worries about the fate of the automakers sent stocks plunging Wednesday, with all three major gauges ending at the lowest levels since 2003. Stocks extended the selloff Thursday morning.

Markets worldwide declined. Asian stocks tumbled, with the Japanese Nikkei losing 6.9%. In afternoon trading, London's FTSE 100 was off 4.4% and the German DAX was down 4.4%.

Economy: The number of Americans filing new claims for unemployment jumped last week to 542,000, the highest level in 16 years, the government reported. The number of people continuing to collect unemployment benefits neared a 26-year high.

The index of leading economic indicators (LEI), fell by 0.8% in October, after gaining a revised 0.1% in September. Economists thought the Conference Board report would fall by 0.6%.

The November Philadelphia Fed index, a regional read on manufacturing, fell to negative 39.3 from negative 37.5 in October. Economists expected a reading of negative 35.

Automakers: The Senate has called off a vote on a proposed $25 billion bailout package for the industry due to lack of support from Senate Republicans and the White House. However, a bipartisan group from auto industry states is working on a scaled-down package that is more likely to get passed.

The top executives of Chrysler, GM (GM, Fortune 500) and Ford Motor (F, Fortune 500) have been on Capitol Hill all week making the case for additional government support to stay afloat. But critics say the companies would be better served by declaring bankruptcy, restructuring and reemerging leaner and more efficient.

GM shares plunged 25% Thursday, while Ford shares lost 11%.

On Thursday, General Motors' finance arm GMAC said it has filed to become a bank holding company, in a bid to tap into the $700 billion bank bailout.

Citigroup: The company's largest shareholder, Saudi Prince Alwaleed Bin Talal, said Thursday that he is increasing his stake in the troubled bank back to 5% from 4%, even as shares continue to plummet.

The move follows the U.S. government's decision to inject $25 billion into the bank. Earlier this week, Citi said it was cutting over 50,000 of its staff as a means of cutting costs heading into what is expected to be a rough 2009. Citigroup (C, Fortune 500) shares plunged 17% Thursday.

Other markets: U.S. light crude oil for December delivery fell $2.62 to $51 a barrel on the New York Mercantile Exchange, after briefly falling below $50 a barrel in electronic trading. Oil is trading at the lowest levels since Jan. 2003.

Gasoline prices dipped another 2.7 cents to a national average of $2.02 a gallon, according to a survey of credit-card activity released Thursday by motorist group AAA. Prices have been declining for more than two months. During that time, prices have dropped by $1.84 a gallon, or over 52%.

The dollar fell versus the euro and the yen.

COMEX gold for December delivery rose $6 to $742 an ounce.

Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to a five-year low of 3.20%, down from 3.33% late Wednesday. Treasury prices and yields move in opposite directions. (Full story)

The yield on the 3-month Treasury bill briefly fell to 0.00%, a nearly 68-year low, before bouncing back to 0.02%. The 3-month - seen as the safest place to put money in the short term - last hit these levels in September as investor panic peaked. The low yield means nervous investors would rather preserve their money despite little or no interest rather than risk the stock market.

Borrowing rates were slightly improved. The 3-month Libor rate fell to 2.15% from 2.17% Wednesday, while overnight Libor was unchanged at 0.44%, according to Libor is a key bank lending rate.