Wall Street stumbled through another volatile session Thursday but ended with a respectable gain after a multibillion-dollar deal between Dow Chemical and rival Rohm & Haas helped offset concerns about the financial sector and energy costs.
Shares of mortgage finance companies Fannie Mae and Freddie Mac skidded lower on worries they would be forced to sell more new shares than anticipated to compensate for losses from the housing slump. Several retail banks and investment banks also dropped, particularly Lehman Bros. Holdings.
The declines in the financial sector came after Treasury Secretary Henry M. Paulson Jr. told Congress that Wall Street couldn’t expect the government to bail out troubled financial companies.
“For market discipline to effectively constrain risk, financial institutions must be allowed to fail,” Paulson said.
Crude oil prices rebounded by more than $5 to surpass $141 a barrel.
Although investors found a reason to buy after Dow Chemical’s $15-billion, all-cash acquisition of specialty chemicals maker Rohm & Haas, they are cautious ahead of quarterly results, in particular those from financial companies, due out next week.
“Investors lack real clarity from the banks,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “It’s this uncertainty that keeps investors out of the market, so what you get is a situation where you’re reacting to news. There are a lot of crosscurrents.”
The Dow Jones industrial average finished up 81.58 points, or 0.7%, at 11,229.02. Oil’s resurgence briefly pulled the Dow into negative territory in afternoon trading.
Broader stock indicators also finished higher. The Standard & Poor’s 500 index gained 8.70 points, or 0.7%, to 1,253.39, while the Nasdaq composite index rose 22.96 points, or 1%, to 2,257.85.
Light, sweet crude for August delivery rose $5.60 to $141.65 a barrel on the New York Mercantile Exchange on worries about another missile test by Iran and more supply disruptions in Nigeria.
Bond prices ticked higher as stocks fluctuated. The yield on the benchmark 10-year Treasury note, which moves opposite to its price, slipped to 3.8% from 3.81% Wednesday. The dollar was mixed against other major currencies, with the euro gaining 0.003 to $1.578. Gold prices rose $13.60 to $940.90 an ounce.
In economic data, the Labor Department said new applications for unemployment insurance fell a seasonally adjusted 58,000 to 346,000 last week. But continuing claims rose, indicating lingering weakness in the labor market.
The number of people continuing to receive unemployment benefits jumped by 91,000 to 3.2 million for the week ended June 28, the most recent period for which that information is available. The gain leaves the filings at the highest level since late December 2003.
The biggest decliner among the 30 Dow companies was American International Group, which tumbled $2.15, or 8.2%, to $23.99. On Wednesday night, credit ratings agency Moody’s Investors Service lowered its financial strength rating on AIG’s mortgage insurance subsidiary.
Freddie Mac fell $2.26, or 22%, to $8, and Fannie Mae fell $2.11, or 13.8%, to $13.20. Lehman fell $2.44, or 12.4%, to $17.30.
Shares of Wachovia also sank Thursday after the bank named a new chief executive Wednesday night. Wachovia fell $1.16, or 8.1%, to $13.13.
In corporate news:
* Wal-Mart Stores credited sales of groceries and tax rebate checks with giving a boost to its June results, and it raised its forecast for the current quarter. The world’s largest retailer said its same-store sales, or sales at stores open at least a year, rose 5.8% for the five weeks ended July 4. The stock fell 46 cents to $57.21.
* Costco Wholesale shares dropped $1.29 to $70.86, though it reported same-store sales rose 9% in June including sales of gasoline.
Discounters have been beneficiaries of consumers’ search for ways to help their strained household budgets. The health of the consumer is a concern for Wall Street, as consumer spending accounts for more than two-thirds of U.S. economic activity.
The Russell 2,000 index of smaller companies rose 6.69, or 1%, to 670.44.
Overseas, Japan’s Nikkei stock average rose 0.1%. Britain’s FTSE 100 fell 2.2%, Germany’s DAX index declined 1.3%, and France’s CAC-40 fell 2.5%.