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Stocks rise on bailout hopes; credit remains tight
NEW YORK — Financial markets grew more upbeat Thursday as political leaders said they struck an agreement in principle on a massive spending plan to revive the crippled financial system. The Dow Jones industrial average jumped about 200 points on optimism about the bailout, and demand for safe-haven assets remained high but eased slightly as some investors placed bets that a deal would help unclog credit markets.
Stock market investors got a lift when key lawmakers said they would present the $700 billion plan to the Bush administration and hoped for a vote by both houses of Congress within days. Still, some resistance remained from House Republicans as the closing bell on Wall Street rang ahead of a meeting of congressional leaders at the White House.
And after the close of trading, it was clear that plan could still face some obstacles. Stock futures weakened, signaling a lower open Friday, after Sen. Richard Shelby, the top Republican on the Banking Committee, left the White House meeting and said the announced deal "is, obviously, no agreement."
Trading that has been difficult for more than a week is likely to remain so in the coming days.
"The market's going to experience volatility as the terms become known," said Doug Roberts, chief investment strategist at Channel Capital Research.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged lawmakers Tuesday and Wednesday to quickly sign off on the plan, which they said would help prop up the economy by removing billions of dollars in risky mortgage-related assets from financial firms' balance sheets. Fear of heavy losses on these assets has made banks hesitant to extend credit, which in turn threatens the overall economy by making it harder and more expensive for businesses and consumers to borrow money.
President Bush highlighted what he sees as the urgency in a national address Wednesday night. Major elements are still being worked out, including how to phase in the mammoth cost of the package and whether the government will get an ownership stake in troubled companies.
Alan Lancz, director at investment research group LanczGlobal, said stock market investors were encouraged that the rescue looked more likely than it had earlier in the week. He said the move could help unclog credit markets by allowing banks and investors to place values on assets tied to mortgages.
"How do you establish a floor? Well, this is the bazooka. This is how you establish a floor," he said of the plan's goal of buying up the toxic debt.
Still, some investors had their doubts. Demand eased but remained high for the 3-month Treasury bill, considered the safest short-term investment. Its yield rose to 0.72 percent from 0.49 percent late Wednesday. That means investors are still willing to earn the slimmest of returns in exchange for a safe place to put their money. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.84 percent from 3.81 late Wednesday.
The Dow rose 196.89, or 1.82 percent, to 11,022.06. The gain helped erase some of the losses from heavy selling earlier in the week, though the blue chips still remain down by more than 360 points, or 3.2 percent.
Broader stock indicators also rose Thursday. The Standard & Poor's 500 index advanced 23.31, or 1.97 percent, to 1,209.18 and the Nasdaq composite index rose 30.89, or 1.43 percent, to 2,186.57.
Advancing issues outnumbered decliners by nearly 3 to 1 on the New York Stock Exchange, where consolidated volume came to 5.73 billion shares, compared with 4.66 billion traded Wednesday.
Roberts noted that the market's back-and-forth moves of late might be unnerving for investors but ultimately can leave stocks with little to show for all the volatility.
"Most of this is just oscillating around a straight line," he said, noting that last week's huge daily moves, which also included triple-digit moves in the Dow, left stocks largely unchanged for the week.
The dollar was mixed against other major currencies Thursday, while gold prices fell.
Light, sweet crude for November delivery rose $2.29 to settle at $108.02 a barrel on the New York Mercantile Exchange.
Meanwhile, disappointing readings on employment, housing and demand for big-ticket manufactured goods, as well as a sobering forecast from General Electric Co., underscored the difficulties facing the economy.
The Labor Department said the number of people seeking unemployment benefits increased by 32,000 to a seasonally adjusted 493,000 last week _ the highest level in seven years and well above analysts' expectations of 445,000. Hurricanes Ike and Gustav added about 50,000 new claims in Louisiana and Texas, the department said.
The Commerce Department said sales of new homes fell sharply in August to the slowest pace in 17 years. The average sales price also fell by the largest amount on record. New homes sales dropped by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales pace since January 1991.
The department also said orders for expensive manufactured goods sank in August by the largest amount in seven months as demand for both airplanes and cars sank. Durable goods orders fell by 4.5 percent last month, far worse than the 1.6 percent decline that economists expected and the biggest drop since a 4.7 percent fall in January.
GE lowered its forecast for third-quarter and full-year earnings, citing unprecedented weakness and volatility in the financial services markets. The stock, which had declined in the early going, finished up $1.09, or 4.4 percent, to $25.68 alongside the gains in the broader market.
The Russell 2000 index of smaller companies rose 7.97, or 1.14 percent, to 705.74.
Overseas, Japan's Nikkei stock average fell 0.90 percent. Britain's FTSE 100 rose 1.99 percent, Germany's DAX index added 1.99 percent, and France's CAC-40 jumped 2.73 percent.
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On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
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TIM PARADIS | September 25, 2008 06:05 PM EST |
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