NEW YORK — Wall Street managed a moderate gain in an erratic session Wednesday as investors sorted through a downbeat Federal Reserve assessment of the economy and were also disappointed by a plan to bail out troubled bond insurer Ambac Financial Group.
The Fed’s Beige Book report on regional economies indicated growth at the start of the year was sluggish and accompanied by rising price pressures. The report also cited tighter credit standards.
Meanwhile, Ambac said it plans to issue more than $1 billion in common stock to help shore up its battered balance sheet. Investors had hoped for a contribution from global banks to help Ambac, whose plan will dilute its outstanding shares.
Investors remain nervous about how the fallout from the global credit crisis will hurt financial companies. Recent speculation that Citigroup Inc. might log significant write-downs from exposure to subprime-mortgage- related securities only exacerbated those fears.
“I think it’s more the Ambac” news, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams, referring to expectations about a bailout for the bond insurer. “That’s just not what they were looking for.”
The Dow Jones industrials were up as much as 120 points earlier in the session after a stronger-than-expected reading on the health of the service sector and figures on worker productivity calmed fears about the economy.
The Dow rose 41.19, or 0.34 percent, to 12,254.99.
The Standard & Poor’s 500 index added 6.95, or 0.52 percent, to 1,333.70, while the Nasdaq composite rose 12.53, or 0.55 percent, to 2,272.81.
Bond prices fell sharply after Ambac’s announcement. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.69 percent from 3.58 percent late Tuesday.
The Beige Book, which outlines economic conditions in various parts of the country, appeared to unnerve investors after it showed economic growth has slowed since the start of the year. The report, which arrives two weeks before the central bank’s next meeting, found that eight of the dozen Fed districts saw “softening or weakening” in the pace of business activity. The others saw “subdued, slow, or modest growth.”
“The Beige Book does look weak,” said economist Edward Yardeni, who runs his own research firm. “There isn’t much to suggest that things are improving.”
John Merrill, chief investment officer at Tanglewood Capital Management in Houston, said he is skeptical of a rally.
“The banks are being hit in so many different directions,” he said. “We’re seeing ever more ripple effects of the attack on their capital, and so it’s showing up in places where you would’ve never dreamed showing up a month ago.”
