Stocks finish session mixed

Wall Street ended an erratic session mixed Monday as investors grew more confident of another interest rate cut this month but also wrestled with worries about corporate profits.

Expectations for a rate cut at the Federal Reserve’s Jan. 29 and 30 meeting increased after data last week on employment and manufacturing suggested the economy slowed in December. Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, bolstered that prospect Monday, citing increasingly negative economic signals and predicting weak growth in the first half of the year.

That rate-cut optimism kept stocks from falling far during a session that saw the major indexes reverse course several times. But Wall Street remained uneasy as it awaited fourth-quarter earnings reports, the first of which is expected Wednesday from aluminum producer Alcoa Inc. Analysts said investors would be paying particular attention to financial stocks that have been hit hard by the credit crisis.

“I have the feeling the market wants to hear some good news, and that one of these days we’re going to get it and see a tremendous move higher,” said Matt Kelmon, portfolio manager at Kelmoore Strategy Funds. “We pretty much know the Fed is going to lower rates again, but the real catalyst might come from some of these earnings reports.”

But Jack A. Ablin, chief investment officer at Harris Private Bank, said stocks in the Standard & Poor’s 500 index appeared overvalued based on pessimism about fourth-quarter results.

“The puzzle pieces are not aligning for the stock market right now,” Ablin said.

A warning from the White House to Iran also kept volatility high after a confrontation between that country’s forces and three U.S. Navy ships in the Strait of Hormuz on Sunday.

A speech on the housing market by Treasury Secretary Henry M. Paulson Jr. offered little consolation for the market. Paulson called a correction in the housing market “inevitable and necessary” and said, “There is no single or simple solution that will undo the excesses of the last few years.”

The Dow Jones industrial average rose 27.31 points, or 0.2%, to 12,827.49, after moving in and out of positive territory throughout the session.

Broader stock indicators ended mixed. The S&P; 500 index rose 4.55 points, or 0.3%, to 1,416.18, and the tech-focused Nasdaq composite index fell 5.19 points, or 0.2%, to 2,499.46.

It was the seventh straight session of losses for Nasdaq, which greatly outperformed the Dow and the S&P; in 2007.

The Russell 2,000 index of smaller companies advanced 2.35 points, or 0.3%, to 723.95, marking its first gain in seven trading days.

Last week, the Dow lost 4.2%, the S&P; 500 index fell 4.5%, Nasdaq dropped 6.3% and the Russell 2,000 tumbled 6.5%.

Advancing issues outpaced decliners Monday by 9 to 7 on the New York Stock Exchange.

Bond yields continued to fall Monday after sliding last week. The yield on the benchmark 10-year Treasury note dropped to 3.83% from 3.87% late Friday.

The potential of conflict with Iran, one of the largest oil producers, triggered some concerns that oil prices would build on last week’s record $100 a barrel. Instead, they slid on the belief that a cooling global economy would decrease demand for energy.

Crude futures tumbled $2.82 to $95.09 a barrel on the New York Mercantile Exchange. The dollar rose against most major currencies while gold declined.

In other market highlights:

* Krispy Kreme Doughnuts jumped 32 cents, or 11%, to $3.15 after Chief Executive Daryl Brewster resigned, citing personal reasons. The company has been struggling to turn around its operations.

* SLM, also known as Sallie Mae, rose $1.16, or 7%, to $17.83 after plunging Friday. The student lender named veteran banking executive Anthony P. Terracciano chairman. Albert L. Lord, who was chairman for three weeks, was appointed vice chairman and remains CEO.

* Jefferies Group fell $1.12, or 5.7%, to $18.67. Weakness in its high-yield and asset-management businesses led the investment bank to warn that it would report a fourth-quarter loss.

* Biogen Idec rose $4, or 7.2%, to $59.22. The biotech company said it would post better-than-expected earnings for 2007 and issued a positive 2008 outlook.

* UAL slid $1.82, or 5.9%, to $29.18. An analyst downgraded the parent of United Airlines, saying labor problems were hurting the carrier’s operations.

* Sony climbed $1.68, or 3.2%, to $54.10 after Warner Bros. Entertainment said it would release high-definition DVDs using Sony’s Blu-ray format rather than the rival HD DVD format.

* XM Satellite Radio Holdings slumped 92 cents, or 7.2%, to $11.83. The company will no longer broadcast the Starbucks XM Cafe channel after ending a marketing agreement with the coffee chain operator.

* Overseas, key stock indexes fell 1.3% in Japan, 1.2% in Hong Kong and 0.2% in Britain. Shares rose 0.1% in Germany and France.