Late rally pushes Dow up for week
Stocks rallied in the final 30 minutes of trading Friday, helping blue-chip indexes post their second straight weekly gain, as speculation that bond insurer Ambac Financial Group might be rescued overcame worries about the economy’s slowdown.
After trading in negative territory for most of the session, stocks turned positive after CNBC television reported that a bank rescue of Ambac might come as soon as next week. Sources later told reporters that a deal could be announced Monday or Tuesday.
The financial health of Ambac, MBIA and other bond insurers has deteriorated because of their exposure to risky mortgage bonds. As the companies’ finances have declined so has the market value of many of the mortgage and municipal bonds they insure -- threatening another wave of bond write-downs by banks and other investors.
Earlier in the day, financial issues had led the market lower after Merrill Lynch & Co. recommended that investors sell shares of Fannie Mae and Freddie Mac, the biggest U.S. home-financing companies, in anticipation that their earnings would remain under pressure because of rising loan delinquencies. Fannie Mae slipped 27 cents to $28.72 and Freddie Mac fell $1.14 to $26.61.
News of the potential rescue of Ambac caused the Dow Jones industrial average to swing from about an 80-point loss to a 96-point gain by the close, led by a reversal in financial stocks.
“The Ambac news turned the entire stock and index futures markets around,” said Joe Kinahan, chief derivatives strategist at online brokerage Thinkorswim in Chicago.
American International Group, the largest insurance company, and JPMorgan Chase, the nation’s biggest bank, led the Dow’s turnaround, with AIG shares gaining $1.29 to $48.88 and JPMorgan rising 86 cents to $43.93.
Shares of MBIA rose 28 cents to $12.18 after earlier falling as much as 9.7%. Shares of Ambac, which guarantees more than $500 billion in debt, climbed the most in three weeks, surging 16%, or $1.48, to $10.71 after trading as low as $8.15.
“There’s some possibility that some of the heat on the financials because of dysfunctional credit markets will be removed,” said David Kotok, chief investment officer of Cumberland Advisors Inc. in Vineland, N.J.
The Dow rose 96.72 points, or 0.8%, to end the week at 12,381.02, a gain of 0.3% from the previous week. The Standard & Poor’s 500 index climbed 10.58 points, or 0.8%, to 1,353.11, and was up 0.2% for the week.
The technology-dominated Nasdaq composite added 3.57 points, or 0.2%, to 2,303.35, but was off 0.8% for the week.
Winners topped losers by 3 to 2 on the New York Stock Exchange, but losers dominated on Nasdaq.
CNBC cautioned that negotiations to bolster Ambac “could fall apart.”
Financial Times said banks including Citigroup, Wachovia and Barclays were lining up to provide $2 billion to $3 billion to the bond insurer.
Ambac is “exploring capital-raising alternatives” and has had discussions with “various parties,” said Douglas Renfield-Miller, a company executive. He wouldn’t elaborate.
The crippled housing market has roiled stock markets and led to massive write-downs in the values of mortgages and mortgage-backed securities.
Federal Reserve Bank of Dallas President Richard W. Fisher said Friday that the U.S. would probably see slower economic growth, not a deeper slump.
Treasury bond yields edged up, with the 10-year T-note ending at 3.80%, up from 3.78% on Thursday and 3.77% a week earlier. Yields had plunged on Thursday as some investors rushed into the securities as a haven after a new economic reports pointed to weakness.
Among the day’s market highlights:
* Energy stocks were higher as near-term crude oil futures added 58 cents to $98.81 a barrel in New York. Oil reached a record $100.74 on Wednesday. Chevron was up 64 cents to $85.42 and PetroChina jumped $3.06 to $151.07.
* Hewlett-Packard was up 57 cents to $47.40, and jumped 8% for the week. The biggest maker of personal computers on Wednesday reported quarterly profit that topped analysts’ estimates and raised its annual sales forecast on increasing demand overseas.
* Goldman Sachs Group, the biggest U.S. securities firm, gained $2.54 to $177.71 after earlier dropping as much as 2.2%. Lehman Bros. added 8 cents to $54.22, recovering from a 3.2% tumble. Bear Stearns rose $2.93 to $85.16.
