Fears subside, stocks rise
Stocks rebounded modestly Wednesday from Tuesday’s plunge, as worries eased that the housing sector’s troubles could spread through the economy.
Soothing words from some Federal Reserve officials and another spate of takeover activity supported stocks.
The dollar continued to fall against the euro and the British pound.
The Dow Jones industrial average gained 76.17 points, or 0.6%, to 13,577.87, recouping about half of its 148-point loss Tuesday.
Stocks of companies that would benefit from global economic strength led the way.
Rising shares edged losers on the New York Stock Exchange and on Nasdaq.
The market had tumbled Tuesday amid a barrage of news suggesting that the housing sector’s woes were deepening.
In particular, investors were spooked after bond rating firm Standard & Poor’s said it probably would soon cut ratings on $12 billion of bonds backed by sub-prime mortgages, which are loans made to people who are high credit risks.
One fear is that rising mortgage bond losses could drive more investors to pull back from risk-taking in bond and stock markets. That could dry up the cash inflows that have helped stocks advance this year.
Stocks continued to slide early Wednesday, but buyers quickly got the upper hand.
The Standard & Poor’s 500 index finished up 8.64 points, or 0.6%, to 1,518.76. It had slumped 1.4% on Tuesday.
The Nasdaq composite index gained 12.63 points, or 0.5%, to 2,651.79, after falling 1.2% the previous day.
Two Fed officials alleviated some jitters about sub-prime mortgage risks. Philadelphia Fed President Charles Plosser said the financial system was well equipped to handle home loan risks, and he didn’t foresee a serious credit crunch or that economic growth would be derailed.
Fed Gov. Kevin Warsh said that though sub-prime troubles might not be over, they weren’t spilling into the broader economy.
Merger news helped boost confidence on Wall Street. Gerdau Ameristeel of Brazil said it was buying Chaparral Steel for $4.2 billion, or $86 a share. Chaparral soared $7.98 to $83.67.
“Any time there’s a [merger] deal, it tends to reassure the market that equities are cheap,” said Jeffrey Schappe, who helps manage more than $17 billion as chief investment officer at BB&T; Asset Management in Raleigh, N.C.
Unilever rose $1.06 to $32.97 on rumors that the consumer products giant might merge with Colgate-Palmolive. Colgate jumped $1.12 to $66.89.
If sub-prime concerns die down a bit, the market’s focus soon will turn to second-quarter earnings reports, analysts said. Wall Street is expecting modest growth for most companies. Market bulls are betting that those expectations will be exceeded.
June sales reports today from major retailers could provide more clues as to the economy’s health in the final month of last quarter.
In other markets Wednesday, Treasury bond yields rose after diving Tuesday, when some nervous investors sought a haven. The 10-year T-note yield ended at 5.09%, up from 5.02%.
Crude oil futures eased 25 cents to $72.56 a barrel in New York after the Energy Department reported that U.S. gasoline inventories rose more than anticipated last week.
The dollar’s decline continued, suggesting that foreigners were losing their appetite for U.S. securities.
The euro rose to a record $1.376 from $1.373. The pound ended at a 26-year high of $2.033, up from $2.027.
Among the day’s market highlights:
* Steel stocks surged on the Chaparral bid. Nucor gained $1.61 to $61.69, U.S. Steel rose $1.37 to $111.11 and Reliance Steel was up $1.41 to $60.88.
* Industrial stocks in general were higher, which analysts said reflected optimism that economic strength overseas would continue to drive up sales for U.S. industrial firms. Sales could be helped by the dollar’s weakness, which makes U.S. goods cheaper for foreign buyers.
Deere rose $1.33 to $125.21, Cummins rallied $2.71 to $114.35 and Parker-Hannifin gained $1.31 to $100.85.
Railroad issues also were strong. CSX advanced $1.52 to $47.35. Norfolk Southern was up $1.04 to $54.57.
* Home builders’ shares, which sank Tuesday after industry leader D.R. Horton forecast a second-quarter loss, were mixed. Horton added 16 cents to $19.56, but Ryland Group fell 10 cents to $36.09 and KB Home declined 22 cents to $35.94.
Among mortgage lenders, Countrywide Financial added 31 cents to $36.17, but IndyMac Bancorp slid 54 cents to $28.67 and Downey Financial eased 13 cents to $64.38.
* Yum Brands jumped $1.61 to $34.41. The fast-food titan’s stock was raised to “buy” from “neutral” by brokerage UBS on the strength of its China operations and the possibility that it might buy back stock.
* California Pizza Kitchen dropped $1.53 to $20.31. The company estimated that second-quarter profit excluding some items was 23 cents a share. That fell short of what some analysts were expecting.
