Stocks Higher on Prospect of Lehman Buyout
Sunday, 24 August 2008

AP, NEW YORK -- Stocks surged higher Friday as oil retreated from this week's rally and as speculation grew that Lehman Brothers Holdings Inc. could be sold. The Dow Jones industrial average rose 180 points.

Worries about the embattled Lehman re-emerged this week as analysts lowered their estimates for the investment bank and forecast large additional write-downs.

However, a Ladenburg Thalmann analyst upgrade on Lehman to ''buy'' helped stocks finish mixed on Thursday; he said he believed Lehman has become a hostile takeover candidate.
And on Friday, after the previous day's media reports that discussions between Lehman and a group of Korean banks had fallen through, another media report emerged that Korea Development Bank is considering buying the company. Lehman rose $1.83, or 13 percent, to $15.55.
Investors appeared cheered by an inflation forecast from Federal Reserve Chairman Ben Bernanke who said at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyo., that inflation pressures should moderate this year amid tepid economic growth. But he also added that the inflation forecast remains ''highly uncertain.''
John Massey, senior portfolio manager at AIG SunAmerica Asset Management, said investors are encouraged by Bernanke's hints that he's not likely to soon raise interest rates and by the possibility of a buyer for Lehman.
''We're seeing the potential for maybe another white knight,'' he said, referring to prospects of a deal to acquire all or part of the investment bank.
In late morning trading, the Dow rose 179.78, or 1.57 percent, to 11,609.99 after being up more than 200 points.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 11.92, or 0.93 percent, to 1,289.64, and the Nasdaq composite index rose 24.80, or 1.04 percent, to 2,405.18.
Light, sweet crude fell $3.28 to $117.90 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.
Bond prices pulled back as investors rushed from the safety of government debt to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.88 percent from 3.83 percent late Wednesday.
The dollar rose against other major currencies, while gold prices fell.
Massey cautioned against making too much of the market's moves given the light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost more than 300 points over Monday and Tuesday before ending moderately higher Wednesday and finishing mixed Thursday.
''The light volumes are really sort of the reasons behind why you've got some outsize moves. I think the issues over all for the economy and the market are fairly well understood,'' he said. ''The market is of this mind-set that we're going to continue to be flattish to down.''
He doesn't expect the stock market to more accurately reflect investor sentiment until after Labor Day, when trading volumes should pick up. Until then, he'll be looking next week at readings on consumer confidence and unemployment to determine where the economy might be headed.
In earnings news Friday, Gap Inc. rose 99 cents, or 5.2 percent, to $20 after reporting late Thursday that profits in the most recent quarter rose 51 percent from a year earlier, thanks to tight inventory and cost control. The results were better than expected.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 256.3 million shares.
The Russell 2000 index of smaller companies rose 8.60, or 1.19 percent, to 733.85.
Overseas, Japan's Nikkei stock average fell 0.68 percent. In afternoon trading, Britain's FTSE 100 rose 2.17 percent, Germany's DAX index rose 1.73 percent, and France's CAC-40 advanced 2.19 percent.

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