Did the Bear Market Rally Just Go Bust?

News at a Glance

Roller Coaster: Stocks fall Friday afternoon, just as it looked like two-week rally was in the books.
Bonus Backlash: Bernanke calls for greater oversight.
Crude Pauses: Oil futures turn flat after Thurs. rally.

The Lowdown

Persistent concern over the economy and some profit-taking caused stocks to limp into the weekend, just as it looked like the major indexes would finish their second consecutive week in the black.

Traders appeared uncertain that the Federal Reserve's sweeping actions intended to lower mortgage rates and jumpstart growth would be met with near-term success. The Dow Jones Industrial Average dropped 122 points at 7277. The Nasdaq slipped 26 to 1457, and the S&P 500 dipped 15 to 768.

Still, the last two weeks have been good to the market and to the Dow, in particular. The blue chip index is up 650 points since March 9.

In regulatory news, Fed Chairman Ben Bernanke echoed Congress's call for greater oversight over executive compensation. Bernanke also cautioned against the creation of institutions that are "too big to fail."

"Indeed, the too-big-to-fail issue has emerged as an enormous problem, both for policymakers and for financial institutions generally," Bernanke said in prepared remarks. Creditors of a firm perceived as too big to fail have less incentive to monitor and restrict the firm's risk-taking through adjustments to the price at which they lend money to the firm."

The Fed promised earlier this week to vastly expand its holdings, investing heavily in mortgage-backed securities and Treasuries. The moves were intended to promote lending and instill confidence, however, after a modest rally, stocks declined on Thursday, as traders began to question the potential of the Fed's plan.

In energy, crude prices turned flat. Oil traded down 55 cents at $51.06 a barrel.

World markets were mixed after Thursday's losses. In Asia, Japan's Nikkei slipped 0.3%, while Hong Kong's Hang Seng dropped 2.3%. In Europe, the major indexes of London, Frankfurt and Paris were higher in afternoon trading.

Corporate News

Bank of America (BAC) was involved in assessing Merrill Lynch's fourth-quarter writedowns before the brokerage was acquired by the bank, The Financial Times reported, citing anonymous sources. Merrill's finance employees worked with BofA chief accounting officer Neil Cotty, who was linked to markdowns that were a part of Merrill's $15.3 billion fourth-quarter loss. BofA said the judgment behind Merrill's valuations was left to its own staff.
Citigroup (C) could spend as much as $10 million for a new suite at the firm's Park Avenue office for chief executive Vikram Pandit, Bloomberg reported, citing an anonymous source. The outlay would come after the federal government handed over $45 billion in bailout funds to keep the bank afloat. Citi was criticized for wreckless spending on a corporate jet earlier this year before canceling the order.
AIG (AIG) executives may not have their controversial bonsuses for very long. The House of Representatives passed a 90% tax on bonuses paid to high-tax-bracket employees of institutions receiving at least $5 billion federal aid, Reuters reported. A Senate version of the bill was blocked by Republican leadership, which said it needed to be studied further.