‘Beige book’ chills rally
The stock market managed a moderate gain Wednesday despite a downbeat assessment of the economy by the Federal Reserve and disappointment about a plan to pump capital into a troubled bond insurer.
The Fed’s so-called Beige Book report on regional economies indicated that growth at the start of the year was sluggish and accompanied by upward pressure on prices. The report also cited tighter credit standards.
Meanwhile, Ambac Financial said it planned to sell more than $1 billion in common stock to help shore up its battered balance sheet. Many investors had hoped it would get a cash infusion from a consortium of global banks or a sovereign wealth fund.
A stronger-than-expected report on the service sector calmed investors’ fears about the economy early in the session, pushing the Dow Jones industrial average up as much as 120 points before it retreated.
The Dow finished up 41.19 points, or 0.3%, to 12,254.99.
Broader stock indicators posted stronger gains. The Standard & Poor’s 500 index added 6.95 points, or 0.5%, to 1,333.70, while the Nasdaq composite rose 12.53 points, or 0.6%, to 2,272.81.
The Russell 2,000 index of smaller companies rose 2.76 points, or 0.4%, to 683.74.
Advancing issues outnumbered decliners by more than 5 to 4 on the New York Stock Exchange.
Treasury bond yields rose after Ambac’s announcement. The yield on the benchmark 10-year Treasury note climbed to 3.68% from 3.6% late Tuesday.
The dollar was mixed against other major currencies, touching a record low of $1.5303 per euro. Gold prices set new record highs, with futures for April delivery up $22.30 to $986.20.
Oil futures shot up $5 to a record close of $104.52 a barrel after the government reported a surprise drop in crude oil stockpiles and OPEC said it would hold production levels steady.
Natural gas futures jumped 4.2% to a two-year high.
Shares of Ambac plunged $2.02, or 19%, to $8.70 on disappointment about the bond insurer’s plan to sell shares. The stock traded as high as $11.94 on Wednesday before the announcement. Rival MBIA also fell, dropping 80 cents, or 6.2%, to $12.18.
The Beige Book report, which outlines economic conditions in various parts of the country, appeared to unnerve investors because it suggested economic growth had slowed since the start of the year. The report, traditionally timed to arrive two weeks before a Fed meeting on interest rates, said that eight of the 12 Fed districts saw “softening or weakening” in the pace of business activity. The others saw “subdued, slow, or modest growth.” The Fed next meets March 18.
Earlier in the day’s trading session, the latest reading on the Institute for Supply Management’s service sector index indicated a contraction in the sector in February, but the index’s decline wasn’t as steep as Wall Street feared.
Investors viewed the report as especially welcome after a stunning decrease in the index in January sent stocks plunging a month ago.
Among the day’s market highlights:
* Thornburg Mortgage lost 41% of its remaining value in extended trading after the lender received a default notice on a $320-million loan. The stock, which plunged 51% on Monday and 18% on Tuesday, dropped 16 cents to $3.40 in regular trading Wednesday. After hours, it plunged to $2 on word of the default notice.
* Overseas, key stock indexes jumped 1.5% in Britain, 2.1% in Germany and 1.7% in France. Shares in Japan fell 0.2%.
