The markets were mixed Wednesday afternoon as fears about the future of General Motors torpedoed Wall Street’s earlier rally.

Today’s Markets

As of 12:52 p.m. EDT, the Dow Jones Industrial Average lost 23.02 points, or 0.29%, to 7945.99, the S&P 500 rose 0.42 points, or 0.05%, to 850.53 and the Nasdaq Composite picked up 12.85 points, or 0.78% , to 1656.71. The consumer-friendly FOX 50 fell 0.54 points, or 0.09%, to 628.50.

The markets started sharply lower on Morgan Stanley’s (MS: 23.0291, -1.6529, -6.7%) deeper-than-expected quarterly loss but then turned higher as the bulls looked to build on Tuesday’s triple-digit rally. However, the rally lost momentum after The Wall Street Journal reported a General Motors (GM: 1.6399, -0.07, -4.09%) exec said the auto maker won’t make its deadline for a $1 billion debt payment, bolstering fears the company will need to file for bankruptcy.

Caterpillar (CAT: 33.19, 1.79, 5.7%) and General Electric (GE: 12.07, 0.4, 3.43%) were the biggest percentage gainers on the Dow in recent trading, helping to offset losses from drug giants Merck (MRK: 22.81, -0.73, -3.1%) and Pfizer (PFE: 13.17, -0.34, -2.52%).

While the Dow dipped into the red, the Nasdaq Composite remained solidly higher as tech heavyweights such as Research in Motion (RIMM: 68.84, 1.81, 2.7%) and Dell (DELL: 10.6, 0.05, 0.47%) rallied ahead of Apple’s (AAPL: 123.17, 1.41, 1.16%) quarterly results.

The Dow is in the red this week due to Monday’s 290-point selloff, putting the benchmark index’s six-week win streak in jeopardy. The previous six weeks of gains carried the Dow more than 24% away from its early March lows, the strongest such rally since 1938.

It’s clear the markets remain worried about the future of the U.S. auto industry as stocks turned red on the GM news. The auto maker is facing a June 1 deadline from the government to reach concessions and avoid a bankruptcy.

Ray Young, GM’s CFO, told reporters the auto maker is relying on either a successful debt-for-equity exchange or court protection to lower its outstanding debt. He said bankruptcy court is “probable,” but indicated the auto maker has the full backing of the U.S., the Journal reported.

Earnings in Focus

Financial stocks initially tumbled after Morgan Stanley (MS: 23.0291, -1.6529, -6.7%) disclosed its second-straight quarterly loss and cut its dividend to offset more bad real estate bets. The former investment bank said it lost 57 cents a share as its revenue tumbled 62% to $3.04 billion in revenue. The Street had been bracing for a more modest loss of 5 cents per share.

However, banking stocks crept into positive territory as Morgan’s stock erased some of its steep losses. Morgan’s results stand in stark contrast to better-than-expected reports released by a string of major banks, including Goldman Sachs (GS: 121.8, 2.17, 1.81%) and JPMorgan Chase (JPM: 32.73, -0.18, -0.55%).

The broader market also managed to shrug off Boeing’s (BA: 37.38, 0.79, 2.16%) results. The aircraft manufacturer reported a quarterly profit of 86 cents per share, widely missing expectations. Boeing also slashed its 2009 earnings outlook to a level that is still above the Street’s view.

There were a number of bright spots in the earnings releases, however, as Dow components AT&T (T: 26.14, 0.89, 3.52%) and McDonald’s (MCD: 54.83, -0.77, -1.38%) reported better-than-expected results. Other companies such as Yahoo! (YHOO: 14.8515, 0.4715, 3.28%) and Altria (MO: 17.23, 0.55, 3.3%) also beat the Street.

Retailers such as Macy’s (M: 12.8199, 0.3399, 2.72%) and Home Depot (HD: 26.52, 0.63, 2.43%) rallied after J.C. Penney (JCP: 27.1, 1.09, 4.19%) upped its first-quarter earnings guidance, saying it sees flat to slightly positive earnings.

While there weren’t any major economic reports released domestically, the International Monetary Fund cut its economic outlook, saying “this downturn by far the deepest global recession since the Great Depression.” The IMF now predicts the global economy will shrink 1.3% in 2009, the first decline in six decades, down from its previous estimate for 0.5% growth.

In the commodities markets, crude oil gave up earlier gains after a new inventory report showed energy stockpiles rose by more than expected last week. Crude was recently down 55 cents, or 1.11%, to $48.00. Gold rose slightly, gaining $7.30 per ounce, or 0.83%, to $890.

Corporate Movers

McDonald’s (MCD: 54.83, -0.77, -1.38%) first-quarter adjusted-profit of 83 cents per share topped estimates as its worldwide same-store sales increased 4.3%. The world’s largest hamburger chain said its April same-store sales were strong, outpacing the first quarter’s.

AT&T (T: 26.14, 0.89, 3.52%) solidly beat analysts’ expectations by reporting a profit of 53 cents a share on $30.6 billion in revenue. The biggest U.S. telecom said it added 1.2 million net new subscribers in its wireless unit, a potential prelude to its partner Apple’s (AAPL: 123.17, 1.41, 1.16%) quarterly results due after the closing bell.

Wells Fargo (WFC: 19.35, 0.65, 3.48%) reported a $3.05 billion first-quarter profit, in line with its prior forecast the company released last week. Revenue for the West Coast bank totaled $21.02 billion, above the $20 billion that Wells Fargo had previously forecast.

Ford (F: 4.16, 0.38, 10.05%) saw its shares jump after Goldman Sachs added the auto maker to its “conviction buy” list. The bank predicted Ford is poised to capitalize on the misfortunes of its chief U.S. rivals, General Motors (GM: 1.6399, -0.07, -4.09%) and Chrysler.

WellPoint (WLP: 41.9, 0.19, 0.46%) posted an adjusted-profit of $1.62 per share, widely exceeding expectations. The health insurer’s revenue slipped 0.4% to $15.3 billion.

Capital One Financial (COF: 14.28, -0.79, -5.24%) posted a deeper-than-expected loss of 39 cents per share as its revenue tumbled 18.6% to $3.7 billion. The credit card company said charge-offs jumped 8.39% in the quarter, up from 7.08% in the fourth, and could soon exceed 10%.

Altria (MO: 17.23, 0.55, 3.3%), formerly known as Philip Morris, said it earned 38 cents a share during the quarter, beating estimates by a penny. The cigarette maker also backed its 2009 earnings view even as it said U.S. cigarette volume tumbled 14.2%.

Freddie Mac’s (FRE: 0.814, -0.036, -4.24%) acting chief financial officer, David Kellermann, 41, was found dead Wednesday morning in an apparent suicide at his Northern Virginia home.

T Rowe Price (TROW: 37.56, 1.32, 3.64%) said its quarterly profit tumbled 68% and it plans to slash its workforce by 5%. However, the company’s adjusted-earnings of 27 cents per share exceeded estimates.

Genzyme (GENZ: 51.79, -2.71, -4.97%) disappointed the Street with an adjusted-profit of $1.04 per share on $1.15 billion in sales. The biotech company stood by its 2009 earnings guidance.

Pharmaceutical Product Development (PPDI: 18.79, -3.2, -14.55%) plunged to 52-week lows a day after the clinical-research company slashed its 2009 guidance amid heavy cancellations.

Northrop Grumman (NOC: 48.385, 0.555, 1.16%) weighed in with a 47% jump in quarterly profit and upgraded its full-year guidance.

Global Markets

European markets closed sharply higher. London’s FTSE 100 ended up 1.08% to 4030.66, France’s CAC 40 gained 1.72% to 3025.24 and Germany’s DAX rose 2.06% to 4594.42.

In Asia, Japan’s Nikkei 225 gained 0.18% to 8727.30 while Hong Kong’s Hang Seng dropped 2.67% to 14878.45. China’s Shanghai Composite fell 2.94% to 2461.35.

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