updated 8/27/2008 6:56:45 AM ET 2008-08-27T10:56:45

Wall Street ended mixed Tuesday as concerns about the path of Hurricane Gustav sent oil prices higher and offset a better-than-expected reading on consumer confidence. Comments from the Federal Reserve about rising inflation added to the market’s uneasiness.

Major Market Indices

The Fed’s release of minutes from its Aug. 5 meeting showed that the central bank remains concerned about creeping inflation and that it expected it would need to raise interest rates to try to contain rising prices.

At that meeting, policymakers held rates steady because “American businesses and consumers were facing elevated borrowing costs and reduced credit availability.” However, the Fed also said it was far from clear when a rate hike might come.

There was some optimism at the start of the day on the Street after the Conference Board said its consumer confidence index rose to 56.9 from a revised 51.9 in July; analysts had expected a reading of 53. That marked the second month in a row that sentiment improved, after a six-month slide since January.

Meanwhile, the Commerce Department reported that new home sales rose 2.4 percent in July. While analysts expected a drop in sales, the July increase followed a sharp downward revision to June’s sales.

However, concerns that Gustav would hit installations in the Gulf of Mexico in the coming days sent energy prices higher. A barrel of light, sweet crude ended the day up $1.16 to settle at $116.27 on the New York Mercantile Exchange.

“The overall mood is still one of caution, there’s not much out there to get investors excited,” said Todd Salamone, director of trading at Schaeffer’s Investment Research. “But, the bigger picture is that there hasn’t really been a major breakdown considering all the bad headlines out there, from higher oil prices to the credit crisis and troubled housing sector.”

The Dow Jones industrials rose 26.62, or 0.23 percent, to 11,412.87. The blue-chip index crossed in and out of positive territory throughout the session.

Broader indexes were mixed. The Standard & Poor’s 500 index rose 4.67, or 0.37 percent, to 1,271.51; the Nasdaq composite fell 3.62, or 0.15 percent, to 2,361.97.

Stocks have fluctuated during the past two sessions in part because of light trading, with many people on Wall Street taking the last week of August off. Advancing issues narrowly beat decliners by an 8-to-7 basis on the New York Stock Exchange, where volume came to a light 856.4 million shares.

Bonds were little changed. The yield on the benchmark 10-year Treasury note, which trades opposite its price, fell to 3.78 percent from 3.79 percent late Monday. The dollar hit a six-month high against the euro and surged to a 25-month high against the pound, while gold prices advanced.

Alexander Paris, an economist and market analyst for Chicago-based Barrington Research, said investors continue to be fixated on a few key issues that have rattled the markets this month. The biggest concerns continue to be the “direction of oil prices and the credit markets,” he said.

“The market continues to question the same things, and we’re not really getting any answers,” he said. “I think that’s one of the reasons why people are staying on the sidelines.”

Worries have intensified in recent weeks about the financial sector, and how much further it must fall before it can emerge from the credit crisis. Global financial companies have booked more than $300 billion of write-downs during the past year, and more are expected when investment banks report third-quarter results in mid-September.

There are also concerns about the future for big investment banks, with continued speculation that companies like Lehman Brothers Holdings Inc. might be forced into a sale because of steep losses. Smaller banks have also been hard hit, with nine failing since the mortgage crisis began last year.

On Tuesday, the Federal Deposit Insurance Corp. said 117 banks and thrifts are considered to be in trouble since the second quarter. That is up from 90 in the prior quarter, and the biggest tally in five years.

The FDIC also said banking industry profits plunged by 86 percent in the second quarter. Federally insured banks and savings institutions earned $5 billion in the April-June period, down from $36.8 billion a year earlier. They also set aside a record $50.2 billion to cover losses from soured mortgages and other lends in the second quarter.

Troubles in the housing sector still aren’t showing any clear signs of abating. The widely watched Standard & Poor’s/Case-Shiller home price index tumbled the most ever during the second quarter, falling 15.4 percent compared to the same period a year ago.

However, shares of Fannie Mae and Freddie Mac climbed for a second day amid expectations in some Wall Street quarters that the mortgage financiers will be able to weather the housing storm without a government rescue.

Fannie shares rose 43 cents, or 8.3 percent, to $5.62 in morning trading, while Freddie soared 69 cents, or 21 percent, to $3.98.

In other corporate news, Smithfield Foods Inc., the nation’s largest hog producer and pork processor, said Tuesday it swung to a fiscal first-quarter loss due in part to a $20.1 million write-down in the value of commodities contracts. Shares fell $1.62, or 6.9 percent, to $21.91.

Credit Suisse Group said it has acquired a majority stake in U.S.-based company Asset Management Finance Corporation for $384 million of newly issued Credit Suisse stock. Shares of Credit Suisse fell 27 cents to $44.81.

The Russell 2000 index of smaller companies rose 2.97, or 0.41 percent, to 723.51.

Overseas, Japan’s Nikkei stock average fell 0.78 percent. At the close, Britain’s FTSE 100 was down 0.63 percent, Germany’s DAX index was up 0.69 percent, and France’s CAC-40 was up 0.29 percent.

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