– Stocks trimmed their losses to trade flat today when some investors regarded weaker-than-expected economic readings as ammunition for those predicting Federal Reserve policymakers will cut interest rates next week.

Stocks initially fell sharply following a government report that August retail sales excluding automobiles declined precipitously. The report suggested consumers held off spending in the face of turmoil in the financial markets, an unwelcome development that some on Wall Street are hoping could be reversed by a rate cut. Fed policy makers meet Tuesday.

“Emotions are running fairly high,” said a vice president at Becker Capital Management Inc. in Portland, Ore, Robert Schaeffer. “I think you’re seeing a lot of normal gyrations in anticipation of whatever the Fed does. They’re looking at the economic data and trying to cypher out of that how that’s going to impact the Fed’s decision next week,” he said of investors.

The rebound in stocks came alongside a partial recovery in Europe. Markets overseas had fallen, at times sharply, after the Bank of England approved emergency funding for lender Northern Rock PLC to head off a possible liquidity crisis. Northern Rock issued a profit warning and blamed the shortfall on credit market turmoil.

In midafternoon trading, the Dow Jones industrial average rose 10.16, or 0.08 percent, to 13,435.04.

Broader stock indicators likewise showed little movement. The Standard & Poor’s 500 index slipped 0.38, or 0.03 percent, to 1,483.57, and the Nasdaq composite index lost 1.58, or 0.06 percent, falling to 2,599.48.

Bond prices slipped after spiking higher earlier in the session when stocks showed steep declines. The yield on the 10-year Treasury note, which moves opposite its price, rose to 4.49 percent from 4.48 percent late Thursday.

Some investors had moved out of stocks and into bonds as some of the sense of safety that drove stocks higher yesterday took a hit. One area of concern was the Commerce Department’s report that retail sales fell 0.4 percent in August excluding vehicle sales. Wall Street had expected a 0.1 percent increase after a 0.7 percent rise in July.

Investors have been on edge over whether tightness in the credit market, a housing slump and volatility on Wall Street have dented consumer spending, which accounts for more than two-thirds of economic activity.

In another report that perhaps stirred unease about the economy, industrial production in August edged up by just 0.2 percent, the weakest advance in three months. The figure reflects a 0.3 percent decline in output from American factories.

Wall Street seemed to wrestle with how the readings might affect the Fed’s stance on interest rates. The central bank has left the benchmark fed funds rate unchanged for more than year.

“Everyone expects the Fed to cut. I guess one of our concerns is the feeling the market has that either the Fed or the government can legislate prosperity,” said the chief investment officer at Ancora Advisors, Denis Amato. “The Fed can sometimes dampen volatility but they can’t create prosperity by pumping money into the system. At some point they have to let some of these excesses play out,” he said, referring to trouble in the housing market and tighter access to credit.

Investors in London reacted badly to news of the Bank of England bailout as it heightened concerns about the viral nature of problems in the U.S. subprime mortgage market. Britain’s FTSE 100 fell 1.17 percent after being down 2 percent.

Northern Rock’s appeal to the Bank of England for help touched off concerns among investors in America and abroad about how long subprime concerns might roil markets.

Mr. Amato said the Fed must balance concerns about cutting rates to ease some of Wall Street’s unease about credit with a need to keep inflation in check and the dollar from continuing to slide.

“Our concern is that the Fed is sort of in a box because if they cut too fast they run the risk of weakening the dollar. If we see foreign investors figure the dollar is declining they might pull their money, in which case the rates go up, not down,” said Mr. Amato.

If rates decline, investors could take money out of Treasurys and seek higher-yielding assets elsewhere.

Todays gyrations and further debates about rate cuts come a day after the Dow industrials rose more than 130 points amid strong gains among constituent stocks such as McDonald’s Corp., which raised its dividend, and General Motors Corp. Reports indicated the automaker was making progress in labor negotiations over health care costs.

The focus on the Fed and other economic issues has led investors to appear little concerned this week by record oil prices. Light, sweet crude fell 10 cents Friday to $79.99 on the New York Mercantile Exchange. Oil closed above $80 per barrel for the first time yesterday.

Gold prices fell, while the American dollar traded mixed against other major currencies.

Declining issues narrowly outpaced advancers on the New York Stock Exchange, where volume came to 676.8 million shares.

The Russell 2000 index of smaller companies rose 0.38, or 0.05 percent, to 780.73.

In markets abroad, Germany’s DAX index fell 0.51 percent and France’s CAC-40 lost 0.49 percent. In Asia, Japan’s Nikkei stock average closed up 1.94 percent, while Hong Kong’s Hang Seng Index gained 1.47 percent.

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