Stocks Sputter to Flat Finish

By PETER A. MCKAY and GEOFFREY ROGOW Stocks lurched to a mixed finish as a rally in health-care firms was offset by losses in the financial sector after the Obama administration unveiled its regulatory revamp. The Dow Jones Industrial Average, stuck in a tight range all day, declined 7.49 points, or 0.1%, to 8497.18. The Nasdaq Composite Index gained 11.88 points, or 0.7%, to 1808.06. The S&P 500 slipped 1.26 points, or 0.1%, to 910.71. Its health-care sector jumped 2.3%, but its financial sector dropped 2.9%. Bank stocks fell after the White House unveiled its expected new regulatory plan. The plan gives increased power to the Federal Reserve and creates a new national regulator for financial firms while doing away with only one of the patchwork of agencies that now oversees the markets: the Office of Thrift Supervision. Traders have been skeptical about the plan, doubting whether the effort will strike the right balance between curbing the excesses that led to the credit bubble while at the same time allowing firms to take steps to boost their profits. "I don't see how it will work," said Michael Mainwald, head trader at Lek Securities, a New York brokerage. "The problems that are the most serious, like credit-default swaps, aren't really well understood by the people designing these plans." Still, traders acknowledge both credit and stock markets have improved greatly since the major indexes in early March hit lows not seen since the 1990s. And from an economic standpoint, there are also improvements, though economists note there remains a long way to go. "The stock market has correctly anticipated what's gone on in the economy with its recent gains by anticipating the change from worse to just bad," said Bob Baur, chief global economist for Principal Global Investors. "But the question remains -- are consumers really going to come back?" On Wednesday, the government reported its consumer-price index rose 0.1% in May from April but fell 1.3% from a year ago, the largest 12-month decline since April 1950. The core CPI, which excludes food and energy prices, climbed 0.1% month over month. The data support the growing sentiment at the Federal Reserve that deflation risks have waned, but there's little evidence inflation is taking hold, a concern that has crept into bond markets in recent weeks. Treasurys rallied on the tame May inflation report, bond purchases by the Federal Reserve and demand related to hedging in the mortgage-backed securities market. Obama's announcement of forthcoming regulations for the financial industry put pressure on the sector. A handful of banks, including JP Morgan, Citigroup and Bank of America all finished lower. Dave Kansas reports after the bell. Bonds were also supported by a statement from Standard & Poor's that said the U.S.'s triple-A credit ratings are unlikely to be cut any time soon. The rally further extended the rebound in Treasurys since late Thursday. The 10-year note's yield, which briefly broke above 4% Thursday, dipped to as low as 3.578% Wednesday. In the stock market, in addition to the strong health-care sector, consumer stocks were also higher on the session, bouncing back from a Tuesday slide. But some signs of trouble did surface. Retailer Eddie Bauer filed for Chapter 11 bankruptcy protection and said it will be acquired by private-equity firm CCMP Capital Advisors. In the agriculture sector, a profit warning from German fertilizer company K+S AG sparked a selloff that spread to other names. Potash Corp. of Saskatchewan fell 11%. Agrium sank 7.4%, while Archer Daniels Midland declined 2%. The week so far has been dominated by big moves in the last hour of trading, with traders expecting that trend to continue on Wednesday and Thursday. Notably, Friday marks triple-witching -- the expiration of stock-index options, options on individual names and stock-index futures. In addition, quarterly rebalancing for the S&P ADR Indices will be updated at the close on Friday. "A lot of people are playing a bullish/bearish game throughout the week, setting up for triple witching and rebalance on Friday," said Robert Weinstein, senior managing director for Lighthouse Financial Group. "But once we enter the summer, you'll see some of this volatile movement dry up." While the financial sector was under pressure, some investors were hopeful following the announcement that J.P. Morgan Chase, Goldman Sachs Group and Morgan Stanley have bought back preferred shares they issued to the government under last fall's bailout effort. Goldman sank 3% following the news, while the other two companies were off more than 2%. "I really think this is a case of people selling on the news, since we've been anticipating repayment for so long," with many participants placing bets well ahead of the actual announcements, said portfolio manager Uri Landesman, of ING Investment Management. "Over the long term, though, this is a very promising sign that things are getting back to normal." In other markets, both energy and metals prices erased morning declines and closed slightly to the upside, helping oil and materials companies pare some of their morning declines. —Min Zeng contributed to this article. Write to Peter A. McKay at peter.mckay@wsj.com and Geoffrey Rogow at geoffrey.rogow@dowjones.com