NEW YORK (AP) - Wall Street lurched through another erratic session Tuesday as investors clung to hopes for an interest rate cut and grappled with the possibility of further trouble for the housing market and mortgage lenders like Countrywide Financial Corp.

The National Association of Realtors said Tuesday its index tracking pending U.S. home sales fell 2.6 percent in November, a larger decline than the market expected. The home sales report followed last week's disappointing readings on employment and manufacturing, and the three reports fed the market's hopes that the Fed will continue its campaign of rate cuts to prevent the U.S. economy from slipping into a downturn. The Fed meets next Jan. 29-30.

But jitters about Countrywide and KB Home, which posted a disappointing fourth quarter loss, kept Wall Street on edge.

Many traders have been betting recently that the lender might need to file for bankruptcy. Countrywide denied that rumor Tuesday, and its stock partially recovered from a plunge. Still, it remained sharply lower on the day; Lehman Brothers said in a note that Countrywide's earnings power has declined severely, and The New York Times reported the company fabricated documents related to the bankruptcy case of a Pennsylvania homeowner.

Recession fears have been thwarting stock rally attempts so far this year, said Richard Sparks, senior equities analyst at Schaeffer's Investment Research. 'It's difficult to balance the ability to cut rates to stave off a recession with the stated goal that the Fed has to not spur inflation. There's a question out there -- can the Fed do enough?'

Philadelphia Fed President Charles Plosser said in a speech the central bank remains open to further rate reductions, but that inflation remains a concern. On Tuesday, gold prices surpassed their 1980 levels and reached a record above $880 an ounce, while oil prices resumed their climb.

In midafternoon trading, the Dow Jones industrial average rose 39.10, or 0.30 percent, to 12,866.59 after rising, falling, and crawling back -- mimicking Monday's volatile session.

Broader stock indicators also rose. The Standard & Poor's 500 index gained 8.33, or 0.59 percent, to 1,424.51, and the Nasdaq composite index added 17.39, or 0.70 percent, to 2,516.85.

All three indexes are down substantially so far this year.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.86 percent from 3.84 percent late Friday.

The dollar fell against most rival currencies, except the yen.

Oil had slipped in the previous session to a two-week low on worries about the U.S. economy, but on Tuesday, light, sweet crude for February delivery rose $1.96 to $97.05 a barrel on the New York Mercantile Exchange.

One of the most actively traded stocks on the New York Stock Exchange was Countrywide, which fell $1.26, or 16 percent, to $6.38 by midafternoon trading.

And KB Home, one of the nation's biggest builders of single-family homes, reported Tuesday its fourth-quarter losses ballooned as sales slowed. The company booked charges to write down unsold inventory. KB Home fell $1.00, or 5.4 percent, to $17.48.

Investors awaited official word that the chief executive of Bear Stearns Cos., which has suffered huge losses from losing bets on mortgages, was leaving the investment bank. The Wall Street Journal reported that CEO James Cayne is expected to retain the chairman title, and to be replaced by Bear Stearns President Alan Schwartz, a 57-year-old investment banker. Bear Stearns fell $3.25 to $74.80.

The report came after Starbucks Corp. -- the world's largest chain of coffee shops, which has seen sales plateau -- announced late Monday it replaced its chief executive officer with former CEO and Chairman Howard Schultz. Starbucks rose $1.88, or 10.2 percent, to $20.25.

Advancing issues outnumbered decliners by about 3 to 2 on the NYSE, where volume came to 1.11 billion shares.

The Russell 2000 index of smaller companies rose 1.54, or 0.21 percent, to 725.49.

Overseas, Japan's Nikkei stock average rose 0.19 percent, and Hong Kong's Hang Seng index fell 0.25 percent. Britain's FTSE 100 rose 0.33 percent, Germany's DAX index added 0.42 percent, and France's CAC-40 rose 0.79 percent.





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