Wall Street staged a dramatic turnaround today, shooting higher in the last half-hour of trading after word that a bailout plan for troubled...
NEW YORK — Wall Street staged a dramatic turnaround today, shooting higher in the last half-hour of trading after word that a bailout plan for troubled bond insurer Ambac Financial could be announced next week.
The Dow Jones industrial average rose 96.72 to 12,381.02.
Microsoft, one of the 30 Dow stocks, shed 42 cents to close at $27.68 a share. Boeing, also a Dow stock, gained $1 to $83.01.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index rose 10.58 to 1,353.11, and the Nasdaq composite index rose 3.57 to 2,303.35.
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CNBC reported shortly before the closing bell that a plan to help shore up the finances of Ambac Financial Group could be announced Monday or Tuesday. Ambac shares jumped on the report and finished up $1.48, or 16 percent, at $10.71.
The market’s turnaround came after nearly two days of selling. The Dow had been down more than 100 points, but by the close, showed a 225-point reversal from its lows of the session.
“There’s probably some validity to the rumors,” said Jim Herrick, manager of equity trading at Baird, referring to traders’ speculation about Ambac. “With the overall financial crunch we’ve experienced, this brings new confidence in the sector.”
The market’s decline this morning followed a sell-off Thursday that left the Dow down more than 140 points, or 1.2 percent. Investors worried about a weaker-than-expected reading on regional manufacturing from the Federal Reserve Bank of Philadelphia as well as another drop in the Conference Board’s monthly index of leading economic indicators.
“I think what really still seems to be dragging the market down are some of those manufacturing numbers,” said Ryan Detrick, strategist at Schaeffer’s Investment Research in Cincinnati, referring to the Philadelphia Fed report as well as regional manufacturing findings from the New York Fed last week. “It just shows that the fears that the U.S. economy is in recession are continuing to dominate.”
Bond prices reversed alongside stocks. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.78 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude for April delivery rose 58 cents to settle at $98.81 a barrel on the New York Mercantile Exchange amid concerns about potential supply disruptions and cold weather.
The day’s late reversal appeared to ease some of Wall Street’s concerns about the prospects for the financial sector and the overall economy after a stream of mostly weak economic readings. The downbeat economic readings that have arrived in recent weeks have raised questions about whether the Federal Reserve will be able to fend off a recession. There have been fears the U.S. may be entering a period of stagflation — when stalling growth accompanies rising prices — for the first time since the 1970s.
As occurred Wednesday and again late today, investors at times set aside those concerns and snapped up stocks either to cover bets that stocks would fall or amid genuine, if tentative, optimism that officials from the Fed or other parts of the government could help right the economy. Wednesday’s gains which followed a quiet start to the week Tuesday — markets were closed for President’s Day on Monday — came after minutes from the Fed’s last meeting indicated that the central bank plans to lower interest rates as needed and look past any gathering concerns about inflation.
Wall Street’s bursts of optimism haven’t been long-sustained in recent weeks. Investors remain concerned that the economy could be so weak that rate cuts, which take months to work their way through the economy, won’t stave off a further slowdown. A government-backed plan to aid bond insurers and keep them solvent could help boost confidence in the bond market.
The Fed’s next rate-setting meeting is scheduled for March 18. Policymakers lowered key interest rates a half-point to 3 percent on Jan. 30, after an emergency three-quarter point cut the previous week.
Ryan Detrick, strategist at Schaeffer’s Investment Research in Cincinnati, said that among the reports due next week, investors will be looking to readings on producer prices — a key measure of inflation — as well as on consumer sentiment. He noted that recent consumer confidence figures, which have been weak, added to Wall Street’s concerns that hesitant consumers could pare their spending.
A pullback among buyers is an unwelcome prospect for investors as consumer spending accounts for more than two-thirds of U.S. economic activity.
In corporate news, Merrill Lynch lowered its ratings on government-sponsored lenders Freddie Mac and Fannie Mae to “sell,” contending the companies face continued headwinds amid the credit crisis. Freddie Mac fell $1.14, or 4.1 percent, to $26.61, while Fannie Mae declined 27 cents to $28.72.
Software maker Intuit fell $2.74, or 9.2 percent, to $27.05 after posting a 21 percent decline in its second-quarter profit late Thursday.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 1.42 billion shares, essentially flat with the low volume seen Thursday.
The Russell 2000 index of smaller companies fell 0.85, or 0.1 percent, to 695.43.
Overseas, Japan’s Nikkei stock average closed down 1.4 percent. Britain’s FTSE 100 fell 0.7 percent, Germany’s DAX index closed down 1.4 percent, and France’s CAC-40 slid 0.7 percent.