Stocks rise on bailout hopes; credit remains tight
Friday, 26 September 2008

AP, NEW YORK -- Financial markets were mixed Thursday as lawmakers moved closer to hammering out a deal aimed at reviving the crippled financial system.

The Dow Jones industrial average rose more than 200 points on optimism about the deal but a credit market squeeze remained as doubts about the proposed plan's effectiveness drove demand for short-term, safe-haven assets.
 
Stock market investors were hopeful that a $700 billion bailout plan would win approval, albeit with some important changes, following two days of testimony on Capitol Hill by the country's top economic leaders.

The momentum intensified Thursday as President Bush summoned congressional leaders to a meeting aimed at securing the legislation.
 
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged lawmakers Tuesday and Wednesday to quickly sign off on the plan, which they contend would help prop up the economy by removing billions of dollars in risky mortgage-related assets from financial firms' balance sheets. Distrust of the financial companies who hold these assets has led to a seizing up of the credit markets, which has threatened the overall economy by making it harder and more expensive for businesses and consumers to borrow money.
 
The president highlighted what he sees as the urgency in a national address Wednesday night. Still, White House officials have yielded to a key demand by congressional leaders, agreeing to include widely supported limits on pay packages for executives whose companies benefit from any deal. Major elements are still being worked out, including how to phase in the mammoth cost of the package and whether the government will get an ownership stake in troubled companies.
 
Alan Lancz, director at investment research group LanczGlobal, said stock market investors are encouraged that a financial rescue is looking more likely than it had earlier in the week. He said the move could help unclog credit markets by allowing banks and investors to place values on assets tied to mortgages.
 
''How do you establish a floor? Well, this is the bazooka. This is how you establish a floor,'' he said of the plan's goal of buying up the toxic debt.
 
Still, some investors had their doubts. Demand remained high for the 3-month Treasury bill, considered the safest short-term investment, with the yield at 0.68 percent, up from 0.49 percent late Wednesday. That means investors are still willing to earn the slimmest of returns in exchange for a safe place to put their money. The yield on the benchmark 10-year Treasury note rose to 3.86 percent from 3.81 late Wednesday.
 
In late morning trading, the Dow Jones industrial average rose 219.59, or 2.03 percent, to 11,044.76. The Dow fell 563 points, or 4.95 percent, in the first three sessions this week.
 
Broader stock indicators also rose Thursday. The Standard & Poor's 500 index advanced 22.40, or 1.89 percent, to 1,208.27, and the Nasdaq composite index rose 34.42, or 1.60 percent, to 2,190.10.
 
The dollar was mixed against other major currencies, while gold prices fell.
 
Light, sweet crude for November delivery fell 30 cents to $105.43 on the New York Mercantile Exchange.
 
To help ease credit market strains, the Federal Reserve early Thursday issued more than $20 billion in collateral such as Treasury bills in exchange for dollars to help meet demand for safe assets.
 
Meanwhile, disappointing readings on employment, housing and demand for big-ticket manufactured goods, as well as a sobering forecast from General Electric Co., underscored the difficulties facing the economy.
 
The Labor Department said the number of people seeking unemployment benefits increased by 32,000 to a seasonally adjusted 493,000 last week -- the highest level in seven years and well above analysts' expectations of 445,000. Hurricanes Ike and Gustav added about 50,000 new claims in Louisiana and Texas, the department said.
 
The Commerce Department said sales of new homes fell sharply in August to the slowest pace in 17 years. The average sales price also fell by the largest amount on record. New homes sales dropped by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales rate since January 1991.
 
The department also said orders for expensive manufactured goods sank in August by the largest amount in seven months as demand for both airplanes and cars sank. Durable goods orders fell by 4.5 percent last month, far worse than the 1.6 percent decline that economists expected and the biggest drop since a 4.7 percent fall in January.
 
GE lowered its forecast for third-quarter and full-year earnings, citing unprecedented weakness and volatility in the financial services markets. The stock, which had declined in the early going, rose 63 cents, or 2.6 percent, to $25.22 alongside the broader market.
 
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 360.5 million shares.
 
The Russell 2000 index of smaller companies rose 8.98, or 1.29 percent, to 706.75.
 
Overseas, Japan's Nikkei stock average fell 0.90 percent. Britain's FTSE 100 rose 1.56 percent, Germany's DAX index added 2.11 percent, and France's CAC-40 rose 2.47 percent.

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