US stocks turn mixed on new Fed loan move

US stocks opened higher before turning mixed on Tuesday as investors reacted to details of the latest round of government intervention in financial markets and a lower reading on economic growth in the third quarter.

The S&P 500 and Dow Jones Industrial Average were higher but the Nasdaq Composite was lower, dragged down by Cisco, which fell 2.6 per cent to $15.97 and Yahoo, down 1.8 per cent at $10.03.

The Federal Reserve on Tuesday morning unveiled a new facility aimed at boosting consumer credit and the market for mortgage-backed securities.

As part of the Term Asset-Backed Securities Loan Facility, the Fed will extend up to $200bn in non-recourse loans to holders of asset-backed securities backed by consumer and small business loans. The Treasury Department will also extend $20bn in funds under the Troubled Asset Relief Program to support the initiative.

The Fed also said it would purchase up to $100bn in GSE debt through a series of competitive auctions starting next week. It will also purchase up to $500bn in mortgage-backed securities backed by GSEs, with the goal of starting that programme by the end of the year.

Shortly after the opening bell in New York, the S&P was up 1.3 per cent at 862.88 while the Nasdaq was 0.5 per cent lower at 1,465.03. The Dow was 1.3 per cent ahead at 8,557.12.

The US markets have rallied for the past two sessions and another day of gains on Tuesday would represent the first three day rally for the S&P since early September 10, 11 and 12.

The updated reading on the economy's performance, released on Tuesday morning by the Commerce Department, showed gross domestic product shrank at a 0.5 per cent annual rate in the July-September quarter, a little softer during the third quarter than first believed, according to government data showing weaker consumer spending and overseas sales.

It was the weakest performance since a 1.4 per cent decrease in third-quarter 2001 GDP.

In corporate news, BHP Billiton dropped its Rio Tinto takeover bid because of the deteriorating economy. The companies had raced to merge when prices soared, but in recent months commodities prices have fallen amid fears that the global economy is entering recession. BHP shares were up 15.83 per cent at $38.69.

Starbucks shares fell 7 per cent in premarket trade after the coffee chain warned late on Monday of an "extremely challenging" fiscal year and a slump in sales. Its shares recovered slighly from those pre-market levels and were down 0.6 per cent at $8.40.

The auto sector was in focus again and General Motors was down 3.9 per cent at $3.46 in early trade.

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