* Stocks stabilize after decline, but caution remains
* S&P 500 on track for worst week since November
* Oracle slides after results miss, drags on Nasdaq
* Dow, S&P up 0.2 pct, Nasdaq down 0.5 pct
By Ryan Vlastelica
NEW YORK, June 21 (Reuters) - U.S. stocks were flat on
Friday, ending two days of heavy losses and heading for the
worst weekly performance since November as traders fretted over
planned changes to the Federal Reserve's easy money policy.
Trading was volatile, with major averages fluctuating
between modest gains and losses, though the Nasdaq was pressured
throughout the day by a steep decline in Oracle Corp,
which dropped after weak results.
Shares have slumped since Wednesday when Federal Reserve
Chairman Ben Bernanke laid out the Fed's plans to pull back on
its $85 billion in monthly asset purchases. The current pullback
is the largest since an 8.9 percent decline between September
When trading began on Friday, the S&P 500 had fallen nearly
5 percent from an all-time closing high of 1,669.16 on May 21.
However, stocks rebounded after a Wall Street Journal analysis
said the market may be misreading the Fed and that a reduction
in bond buying may not come as soon as some expect.
"I think the markets overreacted to the Fed announcement,
since it was fairly positive about economic growth going
forward," said John Carey, portfolio manager at Pioneer
Investment Management in Boston. "I don't see this turbulence as
a sign of a serious downturn."
While the S&P 500 was slightly positive by afternoon, the
10-year Treasury yield rose to 2.49 percent, only slightly below
the day's highs, as investors reset expectations after Bernanke
gave a more explicit timeline for scaling back its bond-buying.
Volatility has spiked since May 22 when Bernanke first
hinted that the Fed may begin to rein in its stimulus measures.
The CBOE Volatility Index, a gauge of anxiety on Wall
Street, jumped 23 percent on Thursday to 20.49, the first time
this year it closed above 20. On Friday it fell 7 percent to
The Dow Jones industrial average was up 24.61 points,
or 0.17 percent, at 14,782.93. The Standard & Poor's 500 Index
was up 2.75 points, or 0.17 percent, at 1,590.94. The
Nasdaq Composite Index was down 16.03 points, or 0.48
percent, at 3,348.60.
So far this week, the Dow is down 1.9 percent, the S&P is
down percent 2.2 percent, and the Nasdaq is down 2.2 percent. It
was the biggest weekly decline for all three since November and
also the second straight week of losses.
Shares of major banks were hit hard as the Treasuries
sell-off continued on fears of losses from their bond holdings.
Citigroup dropped 2.5 percent to $46.70 and Morgan Stanley
lost 0.9 percent to $24.92. Bank of America Corp
fell 1.2 percent to $12.73.
"Investors are very nervous about financials, but I think
they'll come back to the group when earnings are shown to be
holding up," said Carey, who helps oversee $200 billion. At
these levels, he added, "I would look for opportunities in the
Oracle Corp dropped 8.9 percent to $30.25 a day
after the tech giant missed expectations for software sales and
subscriptions for a second straight quarter. Oracle was the
biggest drag on both the S&P 500 and the Nasdaq.
Analysts pointed to the quarterly expiration and settlement
of June equity options and futures contracts on Friday as
another source of volatility.
About $14 billion is expected to change hands in trading
related to index rebalancing towards the session's close, which
could compound volatility, according to Credit Suisse.
S&P Dow Jones Indices said Thursday that News Corp's
spinoff - also known as News Corp - will
replace Apollo Group in the S&P 500. Apollo fell 3.6
percent to $19.01.
China's central bank faced down the country's cash-hungry
banks on Friday, letting interest rates spike as it increased
pressure on banks to curb rampant informal lending and
speculative trading. Some worry that its approach could
backfire, creating the potential for defaults and gridlock in
the money markets of the world's second-largest economy.