Stocks end week with big gain
The stock market capped a volatile week with sharp gains Friday as oil prices tumbled and Federal Reserve Chairman Ben S. Bernanke predicted that inflation would moderate. The Dow Jones industrial average rose nearly 200 points.
Although the rally was partly attributed to Bernanke’s prediction, delivered at a Fed symposium in Wyoming, that inflation will ease this year and next, the Fed chief cautioned that the inflation outlook remained “highly uncertain.”
But a sharp decline in oil prices was unambiguously good for stocks. Crude futures plunged $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange, erasing a more than $5-a-barrel rally Thursday.
Speculation that Lehman Bros. Holdings could be sold helped buoy the financial sector and the overall market. Analysts warned this week that the investment bank could book large write-downs for bad debt. But reports Friday that Korea Development Bank was considering buying the company sent investors rushing for the stock.
Lehman closed up 69 cents, or 5%, at $14.41 after climbing as high as $15.93. An index of financial stocks jumped 3.1%.
But Freddie Mac shares slipped after billionaire investor Warren Buffett told CNBC that Freddie and fellow mortgage giant Fannie Mae “don’t have any net worth.”
The Dow surged 197.85 points, or 1.7%, to 11,628.06.
The Standard & Poor’s 500 index rose 14.48 points, or 1.1%, to 1,292.20, and the Nasdaq composite index climbed 34.33 points, or 1.4%, to 2,414.71.
The Russell 2,000 index of smaller-company stocks jumped 12.35 points, or 1.7%, to 737.60.
Advancing issues outnumbered decliners by about 5 to 2 on the New York Stock Exchange.
The run-up Friday significantly reduced the losses for the week recorded by the major stock indexes: 0.3% for the Dow, 0.5% for the S&P; 500 and 1.5% for the tech-heavy Nasdaq.
Government bond yields rose along with stocks. The yield on the benchmark 10-year Treasury note rose to 3.87% from 3.82% late Thursday.
The dollar advanced against other major currencies. Gold futures fell $5.60 to $827.40.
John Massey, senior portfolio manager at AIG SunAmerica Asset Management, cautioned against making too much of the market’s moves, given light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost a total of more than 300 points in the first two days of the week before ending moderately higher Wednesday and finishing mixed Thursday.
The separate remarks Friday by Bernanke and Buffett appeared to further dim any hope that Fannie Mae and Freddie Mac might be able to get by without a government bailout. While such a move could keep the government-chartered companies operating, it could also wipe out their shareholders.
Although Bernanke didn’t mention Fannie and Freddie by name, he said one of the crucial questions facing the country was how to strengthen the financial system and guard against the “moral hazard” of companies’ making risky choices thinking that the government would ultimately offer a safety net.
Buffett called Fannie and Freddie too big to fail but said their shareholder equity could be lost.
Freddie Mac slumped 35 cents, or 11%, to $2.81. Fannie Mae rose 15 cents, or 3.1%, to $5.
While most sectors gained ground Friday, some miners and manufacturers pulled back as commodity prices fell. U.S. Steel dropped $5.44, or 3.9%, to $133.76, while Freeport-McMoRan Copper & Gold declined $3.06, or 3.3%, to $90.60.
In other market highlights:
* Gap rose 87 cents, or 4.6%, to $19.88 after reporting late Thursday that earnings rose 51% in the latest quarter from a year earlier, thanks to tight inventory and cost control.
* Pacific Sunwear of California plunged $1.98, or 25%, to $5.80 after the Anaheim-based clothing chain owner issued a third-quarter earnings forecast that trailed analysts’ expectations. The retailer of surf-themed T-shirts and shorts cited a “difficult economic environment and challenging retail conditions in some of the company’s key markets.”
* European stock markets also surged. Key indexes rose 2.5% in Britain, 1.7% in Germany and 2.2% in France. Shares fell 0.7% in Japan.