FOMC surge pauses on profit news, econ worries

Small-cap stocks opened lower but battled back to steady levels, pressured by profit-taking after Tuesday’s big FOMC rally. Weak profit news on the financial front and lingering worries about the recession prompted a pause in the updraft, which saw small caps climb to the highest daily close Tuesday since mid-November. At 9:56 a.m. ET, the Russell 2000 (NYSE:IWM) was down 0.11, or 0.02%, at 482.74.

Ahead of the opening, Morgan Stanley (NYSE:MS) announced a larger-than-expected quarterly loss, which could weigh on financial shares early today. MS stock was off 4.3% immediately after the open and financial stocks were on the defensive. Tech stocks were soft early as well, with bellwether Apple Inc. (Nasdaq:AAPL) off 4.6% on concerns about the health of CEO Steve Jobs.

The weekly MBA Mortgage Application Index rose 2.9%, bolstered by a pickup in refinancing, with the MBA’s refinance sub-index climbing 6.5%. The rise in activity was powered by a slide in mortgage rates, which hit the lowest point last week since June 2003. A recent spike in mortgage activity, coupled with talk that the Federal Reserve will target mortgage rates has been a boon to homebuilder stocks, with the ISE Homebuilder Index soaring 78% from the Nov. 21 low. This morning, however, homebuilders appear to be in correction mode with the overall market. On the company news front, small-cap homebuilder Hovnanian Enterprises Inc. (NYSE:HOV) missed the earnings forecast and HOV shares were off 7.5% shortly after the open.

Crude oil prices drifted back and forth between positive and negative territory into the stock market open today, as the market braced for a production cut from this week’s OPEC meeting. Emerging market stocks found support overnight, with Hungary’s beaten down stock market climbing 6% amid gains in oil and gas stocks. Commodities . . .

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