Stocks’ recovery gains momentum
Wall Street’s recovery from last month’s plunge gained momentum Monday, with stocks rising as investors looked past widening cracks in the sub-prime lending sector and bought in response to another parade of acquisition deals.
New Century Financial’s warning that its lenders had suspended financing initially overshadowed acquisition news involving companies such as Dollar General and Schering-Plough. Investors have dealt with concerns that a blowup among companies making loans to consumers with poor credit could spill into other industries.
“The market actually has handled the cutoff by financing ARMs to New Century in a fairly decent way,” said Frederic Dickson, market strategist and director of retail research at D.A. Davidson. “While there are some sub-prime jitters it hasn’t spilled broadly either into the financial sector or across the entire market.”
He said investors appeared to grow emboldened by the merger deals announced Monday. Technology shares also received a boost ahead of a mid-quarter update from Texas Instruments Inc., which tightened its financial targets after the closing bell Monday.
The Dow Jones industrial average rose 42.30 points, or 0.3%, to 12,318.62.
Broader stock indicators also rose. The Standard & Poor’s 500 index advanced 3.75 points, or 0.3%, to 1,406.60, and the Nasdaq composite index rose 14.74, or 0.6%, to 2,402.29.
Bonds rose amid concerns about sub-prime lenders; the yield on the benchmark 10-year Treasury note fell to 4.55% from 4.59% on Friday. The dollar was mixed against other major currencies, while gold prices fell.
Crude oil futures fell $1.14 to $58.91 a barrel on the New York Mercantile Exchange.
Monday’s trading saw the low volatility that has characterized much of the last eight months. Many sessions since the worldwide sell-off that began Feb. 27 have seen much more choppiness as investors hunted for signs of where the market was headed, but Monday’s trading perhaps reflected a further sense that Wall Street had regained its footing. Investors will be looking to economic data due this week on retail sales and inflation and at earnings news as brokerages announce results.
The day’s buyout news offered support for stocks amid the din over sub-prime lenders. The concerns about the sub-prime sector followed a relatively successful week on Wall Street. Stocks etched out gains last week as U.S. and overseas markets managed to regain some sense of stability after the sharp pullback late last month. Concerns about sub-prime lenders still weighed on investors.
In other market highlights:
* New Century Financial warned in a filing with the Securities and Exchange Commission that all its lenders had cut off short-term funding or announced plans to do so after the sub-prime mortgage lender wasn’t able to make payments. New Century, which relies on short-term borrowings to finance mortgage loan originations and purchases, said it would need about $8.4 billion should it be forced to repurchase all outstanding mortgage loans. The company said it didn’t have sufficient liquidity to meet its obligations for repurchasing mortgages.
Trading in New Century shares remained halted with news pending for the entire session Monday. The New York Stock Exchange said it was reviewing the firm’s listing status.
Other sub-prime lenders fell sharply. Fremont General fell $1.30, or 16.2%, to $6.73, while Novastar Financial fell $1, or 19.1%, to $4.24.
Home builders also fell in part amid concerns that tightening credit standards would make it harder for consumers with lower incomes or spotty credit to purchase homes. Hovnanian Enterprises fell $1.75, or 6%, to $27.59, while Pulte Homes fell $1.38, or 4.8%, to $27.38.
* Word that private-equity company Kohlberg Kravis Roberts struck a deal to acquire Dollar General for about $6.87 billion sent the discount retailer sharply higher. Dollar General jumped $4.29, or 25.6%, to $21.07 -- well past the stock’s 52-week high of $18.32.
Schering-Plough rose 10 cents to $23.95 after agreeing to purchase the Organon BioSciences pharmaceuticals business of Akzo Nobel, the Dutch maker of chemicals and coatings, for $14.5 billion. Akzo climbed $7.27 to $53.68.
* Health insurer UnitedHealth Group announced plans to acquire Sierra Health Services, which provides healthcare services, for about $2.6 billion. Sierra Health rose $5.67, or 15.8%, to $41.57, while UnitedHealth advanced 27 cents to $53.27.
* Procter & Gamble, the consumer products company, said it struck a deal to sell its Western European tissue and towel business to SCA, which makes paper and other products, for about $671.9 million. P&G; fell 7 cents to $62.09.
