Seesaw day ends on upside
Stocks advanced during a volatile session Thursday for a second day in a row as investors found renewed confidence in a report that Bank of America was in talks to buy struggling mortgage lender Countrywide Financial.
After seesawing earlier in the day, the Dow Jones industrials finished up 117 points in a rebound led by battered bank and brokerage shares.
The stock market has been buffeted for months by concerns about fallout from the mortgage and credit crisis.
Rumors that Countrywide could file for bankruptcy protection helped drive prices down sharply Tuesday, leaving the Dow off 11.1% from its record high in October -- the sharpest decline in five years.
“For the last month, rumors are that Countrywide was going into bankruptcy,” said Ryan Larson, senior trader at Voyageur Asset Management. “Any deal with Bank of America is good news, and the market is looking for even a hint of good news these days.”
The Dow ended with a gain of 117.78 points, or 0.9%, to close at 12,853.09, after advancing 146 points on Wednesday.
But on Thursday, the index had been up as much as 196 points before pulling back.
Credit concerns were one reason the market waffled earlier, as investors tried to reconcile comments on the economy from Federal Reserve Chairman Ben S. Bernanke and Kansas City Fed President Thomas M. Hoenig.
Stocks jumped after Bernanke said the Fed was ready to lower interest rates again to ward off a recession: “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,” Bernanke said.
But they bobbled up and down before turning narrowly mixed after Hoenig said later that inflation remained a concern and the stock market was “not the center of our attention.”
The comments kept alive fears that the Fed may not respond to investors’ concerns even as it monitors the weakening economy.
Jim Herrick, manager of equity trading at Baird & Co., said many investors had been betting for some time that the Fed would lower rates by half a point at its next meeting, on Jan. 30, so Bernanke’s comments were hardly surprising.
Furthermore, Wall Street is worried that it will take a lot more than rate cuts to restore economic momentum.
Still, most stocks finished the day higher. Winners topped losers by nearly 2 to 1 on the New York Stock Exchange.
The Standard & Poor’s 500 index rose 11.20 points, or 0.8%, to 1,420.33, while the technology-heavy Nasdaq composite index added 13.97 points, or 0.6%, to 2,488.52.
Some investors sold bonds to buy stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.89% from 3.82% Wednesday.
Gold prices continued to soar, a sign of investors’ nervousness about financial markets. Near-term gold futures in New York jumped $12.20 to a record $891.70 an ounce.
In other commodity trading, crude oil prices fell for the fifth time in six sessions, dropping $1.96 to $93.71 a barrel in New York.
Fourth-quarter earnings reports are likely to dominate market news in the next few weeks, analysts said. Investors will be paying close attention to what companies say about their profit prospects in 2008.
Among the day’s market highlights:
Countrywide surged $2.63, or 51%, to $7.75 after reaching an 11-year low Wednesday. Bank of America added 56 cents to $39.30.
Among other mortgage lenders, Washington Mutual jumped $1.82 to $14.16, Downey Financial surged $2.51 to $28.14 and IndyMac Bancorp gained $1.08 to $5.78.
Analysts said some of the gains in the stocks reflected “short covering,” or buying by traders who had bet on lower prices and closed out their positions as the stocks rebounded.
The possibility that Countrywide will be bought “suggests a bottom in financial shares,” said Michelle Clayman, chief investment officer at New Amsterdam Partners in New York. “It says there is some value for these companies, and at the right prices people will come in and prop them up.”
In the investment banking and brokerage sector, JPMorgan Chase gained $1.07 to $41.33, Merrill Lynch rose $1.55 to $52.03 and Bear Stearns advanced $2.93 to $77.75.
Airlines gained the most since March 2003 on speculation that Northwest Airlines, the fifth-largest U.S. carrier, could be a merger partner for Delta Air Lines.
Delta’s board will be asked today to allow talks to start with Northwest and UAL, parent of United Airlines, with the goal of choosing between them, the Wall Street Journal reported, citing people familiar with the matter.
Northwest gained $3.84 to $15.85, UAL surged $6.16 to $32.19 and Delta climbed $2.46 to $15.98.
Alcoa edged up 19 cents to $31.44. Late Wednesday the company reported quarterly operating earnings that were somewhat better than expected.
Verizon Communications, the second-biggest U.S. phone company, added 98 cents to $43.45. President Denny Strigl said the economic slowdown wasn’t affecting revenue from companies or home-phone customers in contrast to comments made by larger rival AT&T; this week. AT&T; gained 40 cents to $39.40.
On the downside, many energy stocks sank with the price of crude. Chevron fell 67 cents to $91.90, Hess lost $2.10 to $92.68 and Occidental Petroleum was down $2.91 to $73. But Exxon Mobil edged up 10 cents to $91.66.
