Stocks Pull Back After Huge Rally Tues.

NEW YORK (AP) -- Stocks pulled back Wednesday as investors paused a day after the market's huge rally and digested better-than-expected results at Morgan Stanley that eased concerns about the investment banking sector. The Dow Jones industrials fell about 80 points.

News that the government plans to free up billions of dollars at Fannie Mae and Freddie Mac, a move that could help struggling homeowners, appeared to quell some of the market's fears.

But some profit-taking was to be expected a day after the gains that saw the Dow Jones industrials shoot up 420 points. Investors sent stocks charging higher Tuesday on stronger-than-expected investment bank results and several moves from the Federal Reserve in recent days, including a 0.75 percentage point rate cut, aimed at jump-starting the credit markets.

Morgan Stanley's earnings indicated that the bank is relatively healthy like Lehman Brothers Holdings Inc. and Goldman Sachs & Co., rather than at risk of failure like Bear Stearns Cos. JPMorgan Chase & Co. struck a deal Sunday to acquire Bear Stearns, which was on the verge of succumbing to credit troubles.

Meanwhile, the Office of Federal Housing Enterprise Oversight, which oversees government-backed Fannie and Freddie, said the changes should result in an immediate infusion of up to $200 billion into the market for mortgage-backed securities. This could mean greater demand for mortgages - an aid for struggling homeowners hoping to refinance at more favorable terms.

George Shipp, chief investment officer at Scott & Stringfellow, said that while some investors appear optimistic, others are still somewhat uneasy about the health of the markets. He contends the back-and-forth days will likely continue as Wall Street tries to feel its way forward.

"Nobody wants to make the first move. There is liquidity on the sidelines. It doesn't really know what to do right now," he said, adding the investors are trying to determine whether moves by the Fed and other regulators to stimulate the economy and stabilize the markets will take hold.

In midday trading, the Dow fell 81.90, or 0.66 percent, to 12,310.76.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 5.58, or 0.42 percent, to 1,325.16, and the Nasdaq composite index fell 15.55, or 0.69 percent, to 2,252.71.

Bond prices jumped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.39 percent from 3.50 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $4.86 to $104.56 per barrel on the New York Mercantile Exchange after government figures suggested the high price of oil and gasoline are damping demand for petroleum products.

Investors' relief over Morgan Stanley follows better than expected earnings news from Lehman and Goldman on Tuesday that gave the Dow its biggest point gain in more than five years. The Dow got an extra boost after the Fed's rate cut.

Morgan Stanley rose $2.84, or 6.6 percent, Wednesday to $45.70. Lehman fell $1.58, or 3.4 percent, to $44.91, while Goldman slipped $1.29 to $174.30.

Investors were also upbeat about the moves at the government mortgage companies. Fannie jumped $2.88, or 10 percent, to $31.10, while Freddie rose $3.99, or 15 percent, to $30.02.

The Fed has slashed key rates by more than half since last summer, when the mortgage crisis claimed its grip on the global credit markets. But the housing and lending industries are still hurting.

Late Tuesday, Visa Inc. launched the largest initial public offering in U.S. history, selling 406 million shares at $44 apiece to raise $17.9 billion. The world's largest credit card processor is not a lender, and many investors are betting that it will easily survive the faltering U.S. economy and credit climate. The stock traded up $16.05, or 36 percent, to $60.05.

Bruce McCain, head of the investment strategy team at Key Private Bank in Cleveland, said recent trading - days when stocks didn't plummet in the face of bad news and rallied on good news - is encouraging because it could signal the market is closer to regaining solid footing.

He said while any placidity in the markets would likely need to occur for some time to extinguish some of investors' fears, he was encouraged by some recent signs of strength in consumer discretionary and financial stocks.

"Those are probably the two most important sectors with respect to this market regaining some confidence and maybe starting to shift gears," he said.

Wall Street has beaten up stocks like those of financial companies in recent months in favor of energy, materials and industrials. Investors hoping for a change in the winds on Wall Street will be looking for signs that money is moving out of these defensive areas into downtrodden corners of the market, McCain said.

Advancing issues narrowly outpaced decliners on the New York Stock Exchange, where volume came to 894.5 million shares.

The Russell 2000 index of smaller companies fell 5.64, or 0.83 percent, to 676.29.

Overseas, Japan's Nikkei stock average increased 2.48 percent, while Hong Kong's Hang Seng index rose 2.26 percent. In afternoon trading, Britain's FTSE 100 fell 0.95 percent, Germany's DAX index fell 0.41 percent, and France's CAC-40 declined 0.31 percent.

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On the Net:

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