The Wall Street Journal-20080111-Bank of America Bets on a Recovery- Blue Chips Jump 117-78 To 12853-09 as Deal- Fed Hints Lift Stocks
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Bank of America Bets on a Recovery; Blue Chips Jump 117.78 To 12853.09 as Deal, Fed Hints Lift Stocks
Hopes that the nation's largest mortgage lender can be rescued from possible bankruptcy and aggressive interest-rate cuts can stave off economic recession drove the stock market to a second straight day of solid gains.
The Dow Jones Industrial Average jumped 117.78 points, or 0.9%, to 12853.09. Over the last two days, it has rallied more than 264 points, though it remains down 3.1% this year.
After months of problems that have plagued markets, traders treated both as positive signs. Still, some suggested concerns could continue to play out a while longer.
"We're still on fragile ground," said trader Mike Mainwald, of Lek Securities, a New York brokerage. "The main thing that changed a bit [yesterday] was psychology. People take it as a good sign that someone is willing to do a deal with a company that is in trouble."
A Wall Street Journal report at about 2:15 p.m. EST that Bank of America is in advanced talks to acquire Countrywide Financial helped to drive stocks sharply higher after major indexes had swung from gains to losses through much of the day.
It isn't clear how soon a deal might be struck, and it is still possible no deal will be forged. But Countrywide shares -- which plummeted days earlier on fears it could seek bankruptcy-court protection -- soared 51%, up $2.63, to close at $7.75 in 4 p.m. New York Stock Exchange composite trading; shares of suitor Bank of America rose 1.5%, or 56 cents, to $39.30, also on the Big Board.
Led by financial companies, the Standard & Poor's 500-stock index was up 0.8%, or 11.20 points, at 1420.33, down 3.3% this year. Citigroup rose 2.3%, Fannie Mae gained 6.5%, and Washington Mutual soared nearly 15%.
The Nasdaq Composite Index rose 0.6%, or 13.97 points, to 2488.52, down 6.2% this year.
Before the Countrywide news broke, a speech by Federal Reserve Chairman Ben Bernanke raised hopes for a sharp cut in the central bank's interest-rate targets.
"In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary," said Mr. Bernanke, adding that officials "stand ready to take substantive additional action as needed to support growth." Stocks rose immediately after the comments were reported but then fell back.
In other economic news, the Labor Department said initial claims for jobless benefits fell 15,000 to 322,000, hitting a two-month low, after seasonal adjustments in the week ended Jan. 5. Wall Street economists had expected a 4,000 rise.
Crude-oil futures tumbled $1.96, or 2.1%, to $93.71 a barrel on the New York Mercantile Exchange, hurt by concerns that demand might suffer more than expected as the economy slows.
In major U.S. market action:
Bond prices fell. The 10-year note shed 26/32 point, or $8.125 for each $1,000 invested, pushing the yield up to 3.888%. The 30-year bond fell 2 5/32 to yield 4.443%.
The dollar weakened. Against the Japanese currency, the dollar fell to 109.47 yen, compared with 109.87 yen. The euro rose to $1.4800, compared with $1.4668.
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E.S. Browning contributed to this article.
(See related article: "Heard on the Street: Interest in Countrywide Sends Hopeful Signal, But How Ill Is Lender?" -- WSJ January 11, 2008)
