NEW YORK (AP) - Stocks closed mostly higher yesterday as investors appeared relieved that little bad news emerged about risky mortgages and shrinking credit markets. Still, many on Wall Street were still seeking safety, and pressed into shorter-term Treasurys.

The market endured back-and-forth trading following a rally on Friday that came in response to the Federal Reserve's decision to lower its discount rate.

The Fed said at the time it stood ready to make further moves to keep credit and stock market losses from hurting the economy, but because it stopped short of a cut in the more important federal funds rate, uncertainty lingered on Wall Street yesterday about policymakers' intentions.

The Fed is not scheduled to meet formally until September 18, which means investors could remain jittery until then.

Brian Levitt, corporate economist at OppenheimerFunds Inc., said the Fed's move, while helpful, would not erase all the market's unease.

"Fed action certainly doesn't make unsound credit sound," he said. "It allows some confidence for the higher quality deals to get done. It's more psychological. It provides confidence that the Fed will be a stopgap and a lender of last resort."

Treasury bonds, which have rallied in recent weeks as investors fled to safe-haven securities, continued their move higher yesterday. Because bond prices move opposite their yields, the yields on the benchmark 10-year Treasury note fell to 4.63 percent from 4.68 late Friday, while the shorter-duration notes saw yields fall sharply as some investors wagered that the Fed might be forced to lower interest rates and therefore avoided longer-duration notes.

The Dow Jones industrials finished up 42.27, or 0.32 percent, at 13,121.35, after seeing 100-point swings higher and lower.

Broader indexes were mixed. The Standard & Poor's 500 index slipped 0.39, or 0.03 percent, to 1,445.55; the Nasdaq composite index rose 3.56, or 0.14 percent, to 2,508.59.

While Wall Street largely shrugged off layoffs at Countrywide Financial Corp. and a big sale of more liquid investments at Thornburg Mortgage Inc., stocks could face pressure today following word that Capital One Financial Corp. plans to close its wholesale mortgage business and book charges of $860 million in charges in 2007. The company, which also slashed its profit forecast, made the announcement after the closing bell.

Yesterday's erratic trading was not unexpected; analysts had questioned how much conviction buyers had on Friday, as much of the rally was pinned on big institutional investors like hedge funds buying shares to cover their positions.

Some investors had been shorting the market - betting stocks would move lower - and were caught off guard when the central bank cut the discount rate.

"There's a lot of uncertainties out there," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners. "The question is if the Fed did enough to satisfy the markets. Wall Street will be relentless until they cut the fed funds rate."

The Fed said yesterday it injected another $3.5 billion into the banking system. The central bank has infused the market with nearly $120bn of liquidity in recent weeks.

Light, sweet crude fell 90 cents to $71.08 on the New York Mercantile Exchange. Investors have been wary as Hurricane Dean has moved toward Mexico, where major oil companies have already begun battening down oil rigs in the Gulf of Mexico.

The dollar was mixed against major currencies, while gold prices rose.

This week will be light on economic reports, which makes it a bit more difficult for investors to assess what the Fed might do at its rate-setting meeting. In one economic reading that arrived Monday, the Conference Board said its gauge of future economic activity moved slightly higher in July.

The research group's index of leading economic indicators rose 0.4 percent in July, as analysts expected.

The index fell 0.3 percent in June, after rising 0.2 percent in May. The report is designed for forecast economic activity over the next three to six months.

With earnings season mostly wrapped up, there was little in the way of corporate news for investors to go by. August is typically one of the slowest periods for equities markets.

Thornburg fell $1.54, or 10.2 percent, to $13.50 after the company said it sold $20.5bn of its safest investments to raise enough cash to allow the mortgage lender to operate amid a crisis in the mortgage industry. Countrywide, the nation's largest mortgage lender, has begun laying off staff amid the credit crunch. The stock fell $1.62, or 7.6 percent, to $19.81.