updated 2/26/2009 8:16:37 AM ET 2009-02-26T13:16:37

Wall Street showed a little resilience as investors got answers to some of their questions about banks.

Major Market Indices

The major indexes closed down about 1 percent Wednesday but recovered from much steeper losses early in the day, continuing the volatile trading that has buffeted the market this week.

Stocks initially fell on growing pessimism about the banking industry and a home sales report that came in weaker than the market expected. But as the day wore on, some of the uncertainty about the troubled banking system lifted when the Treasury Department said it’s beginning to “stress test” the banks. The test will use two economic scenarios to measure banks’ health, and the process is expected to be done by the end of April.

The government also gave the market some reassurance by confirming that it will buy preferred shares from banks that can be converted into common shares. And investors found solace when Federal Reserve Chairman Ben Bernanke rejected for the second straight day the notion that banks could be nationalized.

Still, Wall Street remains worried about the recession deepening, dividends disappearing and how the government will get toxic assets off banks’ books.

“We’re seeing a lot of nervousness, and that’s breeding volatility,” said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. “We’re definitely in a bottoming process of the market, but it’s not coming as quickly as some people would like.”

Investors appeared disappointed that a late-afternoon speech by President Barack Obama after he met with Treasury Secretary Timothy Geithner revealed few additional details about their plan for dealing with the toxic assets that have hobbled many of the nation’s biggest banks.

And the bad news about the housing market left some traders nervous about hanging onto stocks snapped up a day earlier. The National Association of Realtors said sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month — the worst showing since July 1997. Wall Street had expected sales would rise.

The Dow Jones industrial average ended down 80.05, or 1.1 percent, at 7,270.89 after rising 236 points on Tuesday and falling 251 on Monday. The average tumbled by as many as 194 points in early trading Wednesday and later was up 54 before retreating again.

Broader stock indicators also recovered from earlier lows but finished down. The Standard & Poor’s 500 index fell 8.24, or 1.1 percent, to 764.90, and the Nasdaq composite index fell 16.40, or 1.1 percent, to 1,425.43.

The Russell 2000 index of smaller companies fell 11.04, or 2.7 percent, to 401.44.

Losing issues narrowly outnumbered gainers on the New York Stock Exchange, where consolidated volume came to 7.29 billion shares, up from Tuesday’s 7.09 billion.

The S&P 500 index’s ability to hold above its November lows despite the market’s severe volatility this week shows the potential for a stock recovery, said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “We really just need more clarity.”

On the whole, investors were neither disappointed nor galvanized by Obama’s Tuesday night speech that touched on the need to create jobs and stabilize the credit system. He told a joint session of Congress that specifics on these and other goals would follow but that billions more may be needed to stabilize the banking system.

Until it is apparent how potential ownership structure of major U.S. banks will look after the government completes stress tests and determines specific plans to help the struggling sector, investors are likely to remain wary about buying financial shares, said Brett D’Arcy, chief investment officer, CBIZ Financial Solutions.

A handful of bank shares rebounded in afternoon trading, including those Bank of America Corp. — a company that has gotten a double-dose of government funding, and that investors fear might need more. Bank of America rose 53 cents, or 11 percent, to $5.26, after the CEO made optimistic remarks about the company’s stability in a television interview.

Other industries are being dragged down unfairly by the gloom surrounding the market, such as health care and technology, D’Arcy said. Eventually, he said, these sectors will begin to rebound as investors recognize the value in them — but it’s uncertain when that might occur.

Among tech stocks, IBM Corp. fell 50 cents to $85.90. Microsoft Corp. shed 21 cents to $16.96, and Yahoo Inc. fell 27 cents, or 2 percent, to $12.48.

Government bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.93 percent from 2.80 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged at 0.29 percent.

The dollar rose against other major currencies, and gold prices fell.

Light, sweet crude rose $2.54 to settle at $42.50 a barrel on the New York Mercantile Exchange.

Overseas, Britain’s FTSE 100 rose 0.85 percent, Germany’s DAX index fell 1.27 percent, and France’s CAC-40 fell 0.41 percent. Earlier, Japan’s Nikkei stock average rose 2.65 percent.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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