Stocks fluctuated sharply on Wednesday, first falling on reports of declining home sales and losses related to credit problems at Merrill Lynch but rising amid speculation that the Federal Reserve could lower interest rates.

The Dow Jones industrial average dropped 0.98 of a point, or 0.01 percent to end at 13,675.25. The Standard & Poor's 500 Index fell 3.71 points, or 0.24 percent to close at 1,515.88. The technology heavy Nasdaq Composite Index fell 24.50 points, or 0.88 to finish at 2,774.76.

At the Dow fell more than 200 points to hit a low of 13,470.16 for the day.

Before the start of the trading session, the largest U.S. brokerage, Merrill Lynch, reported that it would write-down a whopping $7.8 billion due to bad loans in the subprime market and losses in its collateralized debt obligation business.

Shares in Merrill declined $3.90, or 5.81 percent to close at $63.22 after falling earlier as low as $61.40.

A report from the National Association of Realtors also contributed to early stock losses, indicating that existing home sales dropped 8 percent in September to 5.04 million annual rate, the biggest drop since the Association began keeping track in 1999.

However the session was rescued by speculation that the Merrill and housing news could give the Federal Reserve a reason to lower interest rates to boost the economy.

Traders also may have reacted to rumors that the Fed could call an emergency meeting, lower the discount lending rate or even lower the benchmark fed funds rate ahead of its scheduled October 30-31 meeting.

Investment U.S. Merrill Lynch