Stocks rise modestly as oil continues slide

NEW YORK – Wall Street rose modestly today as the price of oil extended its decline, falling to the $111 a barrel level and helping to offset a disappointing report on consumer sentiment.

Oil fell on a growing sense that economies around the world are joining the U.S. in a slowdown. The rising dollar, which is gaining strength on economic concerns, contributed to the sell-off in crude and also in other commodities.

Light, sweet crude dropped $3.17 to $111.84 a barrel on the New York Mercantile Exchange and earlier traded as low as $111.34.

Oil’s continuing slide, part of an overall decline in commodities prices, was welcome news to investors who have been concerned for months that record-high prices for energy would force consumers to keep cutting back their discretionary spending. Oil is down more than $35 from its July 11 record of $147.27; meanwhile, gold prices that swept past $1,000 an ounce earlier this year are now below $800.

“Commodities continue to fall off a cliff and the market likes it,” said Greg Church, chief investment officer of Church Capital Management.

Still, there were signs that the consumer remains under pressure. The University of Michigan reported a slightly smaller-than-expected rise in consumer sentiment in early August compared with July. Moreover, earnings outlooks from retailers J.C. Penney Co. and Abercrombie & Fitch Co. on Friday came in below expectations.

In early afternoon trading, the Dow Jones industrial average rose 43.89, or 0.38 percent, to 11,659.82.

The Standard & Poor’s 500 index rose 5.42, or 0.42 percent, to 1,298.35, while the Nasdaq composite index rose 4.33, or 0.18 percent, to 2,458.00.

Bonds rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slid to 3.84 percent from 3.90 percent late Thursday.

The dollar rose against other major currencies, contributing to the pullback in oil and other commodities.

Volume remained extremely light, exaggerating moves in the major indexes. On the New York Stock Exchange, 673.50 million shares exchanged hands.

The market extended an advance that began Thursday, ending two days of sharp declines. Lower oil prices along with bargain-hunting in the financial sector drove the stock market higher Thursday.

Financial stocks have been especially volatile recently, as investors remain wary that banks will report more credit losses as the housing market still suffers.

“With some of this sharp price collapse in commodities you would think the market would be up a lot more,” Church said. “The underlying factor is that credit continues to appear to be very weak.”

Standard & Poor’s said late Thursday it is no longer reviewing its ratings on the insurance arms of MBIA Inc. and Ambac Financial Group Inc. for a possible downgrade, though it retained a negative outlook on both companies. Bond insurers have been hit hard as a result of the credit crisis. Ambac shares rose 75 cents, or 16.3 percent to $5.31, while MBIA shares jumped 63 cents, or 6.1 percent, to $10.95.

New York Attorney General Andrew Cuomo said Friday he plans to take legal action against Merrill Lynch & Co. as part of an ongoing investigation into the failure of the auction-rate securities market. Wachovia Corp., meanwhile, became the fifth bank in recent weeks to agree to repurchase billions of the investments as part of a settlement with regulators.

Merrill Lynch shares rose 17 cents to $26.15. Wachovia fell 4 cents to $15.77.

In other financial news, billionaire investor George Soros reported increasing his interest in Lehman Brothers Holdings Inc. to about 9.5 million shares from a meager 10,000 shares since May. Shares gained 41 cents, or 2.5 percent, to $16.61.

Airline stocks rose on the drop in oil. AMR Corp., the parent company of American Airlines, gained 60 cents, or 5.3 percent, to $11.88, while UAL Corp., operator of United Airlines, rose $1.12, or 8.8 percent, to $13.80. Delta Air Lines Inc. rose 48 cents, or 5.4 percent, to $9.30.

Shares of major oil companies fell along with the price of oil. ConocoPhillips dropped $1.58, or 2 percent, to $77.79, while Marathon Oil Corp. fell $1.04, or 2.3 percent, to $44.88. Chevron Corp. lost $1.73, or 2 percent, to $84.20.

In a positive development, the New York Federal Reserve reported that business conditions for manufacturers have been improving in August. Its index returned to positive territory, indicating expansion – analysts had been predicting a fourth straight month of contraction.

Advancing issues were relatively even with decliners on the NYSE.

Overseas, Japan’s Nikkei stock average rose 0.48 percent. Britain’s FTSE 100 fell 0.66 percent, Germany’s DAX index rose 0.06 percent, and France’s CAC-40 rose 0.60 percent.