Investors are expecting policymakers to cut rates Tuesday afternoon for a third straight time, and perhaps indicate that more might be forthcoming. Most economists are expecting a quarter-point cut in the federal funds rate to 4.25 percent -- though there are some hoping for a half-point cut in the Fed's last meeting this year.

The central bank has been trying to help the economy weather a severe slump in housing, spreading mortgage defaults and financial market turbulence. But, there has been fresh evidence just this week that the world's banks and brokerages are still suffering from the subprime loan crisis.

Washington Mutual Inc. became the latest lender to resort to a massive stock sale to shore up its finances. WaMu's plan to sell $2.5 billion worth of convertible preferred stock follows a move by Switzerland-based UBS AG to sell $11.5 billion in shares to Singapore's sovereign wealth fund and an unidentified Middle Eastern investor.

Investors have sent shares higher in recent weeks as they've grown more confident in the Fed's openness to loosening its policy again. Stocks had a sharp advance on Monday, when the Dow Jones industrials rose more than 100 points.

"The market has been very optimistic going into the Fed meeting, and people are pretty much on the sidelines until the decision is released," said Todd Leone, managing director of equity trading at Cowen & Co. "We're expecting a quarter-point cut, and people have already made their bets."

In midday trading, the Dow fell 20.08, or 0.15 percent, to 13,706.95 after rising in early trading.

Broader indexes were mixed. The Standard & Poor's 500 index fell 1.99, or 0.13 percent, to 1,513.97, and the Nasdaq composite index added 3.43, or 0.13 percent, to 2,722.38.

Bond prices advanced. The 10-year Treasury note's yield, which moves opposite the price, fell to 4.10 percent from 4.16 percent late Monday. Gold rose while the dollar was mixed against major currencies.

Oil prices rose in anticipation of a rate cut, a move that could bolster energy demand from world's biggest oil consumer. Light, sweet crude for January delivery rose $1.73 to $89.59 a barrel on the New York Mercantile Exchange.

Ahead of the Fed's announcement at 2:15 p.m. EST, investors also weighed other economic news. The Commerce Department reported U.S. wholesale inventories were little changed during October, a sign businesses might be trying to keep supplies lean. The flat reading in October inventories came short of Wall Street expectations for a 0.4 percent increase.

Some of the market's hesitance has come from recent problems at global banks, including Washington Mutual, said MF Global fixed income analyst Jessica Hoversen.

"Sovereign wealth funds are trying to bail out the financial sector, but they're coming in at vulture prices," she said. "That I think is a big issue for the market. While they want to believe there is still value in the financial sector, we've come a long way down."

Washington Mutual shares fell $1.58, or 8 percent, to $18.30 after the nation's largest savings and loan also said it will close offices, lay off more than 3,000 workers, and slash its dividend. The bank also set aside up to $1.6 billion for loan losses in the fourth quarter.

In other corporate news, Texas Instruments Corp. added support to technology stocks after it lifted the low end of its earnings and revenue outlook. Shares rose 90 cents, or 2.7 percent, to $33.57

AT&T Inc. rose rose $2.37, or 6.3 percent, to $40.27 after the telecommunications company said it will buy back 400 million shares and raise its dividend 12.7 percent. The buyback represents about 7 percent of the company's stock, and will be completed by the end of 2009.

H&R Block Inc., the nation's largest tax preparer, said in a preliminary earnings report it expected a huge second-quarter loss as it continued to wrestle with its disintegrating mortgage arm. Shares fell 10 cents to $19.85.

The Russell 2000 index of smaller companies fell 0.23, or 0.03 percent, to 790.97.

Declining issues outpaced advancers by a 5 to 4 basis on the New York Stock Exchange, where volume came to 371.8 million shares.

Overseas, Japan's Nikkei stock average closed up 0.76 percent, while Hong Kong's Hang Seng index added 2.55 percent. At the close, Britain's FTSE 100 fell 0.43 percent, Germany's DAX index shed 0.30 percent, and France's CAC-40 dropped 0.45 percent.

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