Wall Street higher on hopes of credit recovery

The board on the trading floor of the New York Stock Exchange shows the final result of 127.04 points down as the Dow ends a volatile week on Wall Street Friday, Oct. 17, 2008. (AP Photo/David Karp) By Joe Bel Bruno AP Business Writer

NEW YORK—A rising wave of optimism lifted Wall Street Monday, propelling the Dow Jones industrials up more than 400 points on more signs of a reviving credit market and support from Federal Reserve Chairman Ben Bernanke for further steps to aid the economy. All the major indexes finished with gains of 3 percent or more.

Investors who had sold furiously in recent weeks in response to immobile credit markets became more optimistic as bank-to-bank lending rates eased further. There's also less demand for ultra-safe Treasury bills, another sign that the credit markets are gradually returning to a healthier state.

The improvement in lending rates helped temper concerns that tight credit will contribute to a prolonged recession, but Bernanke still warned that the economy is likely to be "weak for several quarters, and with some risk of a protracted slowdown."

But he also told the House Budget Committee that a fresh round of government measures might help ease the country's economic weakness. There were no details but the White House said it was open to ideas that Congress might put forth.

"The market liked what Bernanke had to say, and there were hints that he's leaving the door open for further moves in terms of rate cuts or economic stimulus," said Ryan Larson, head of equity trading at Voyageur Asset Management. "And, with credit easing in slow baby steps, the market has started to realize that this is going to be a process."

Wall Street was also sifting through the first of hundreds of earnings reports expected this week, seeking clues about future business conditions. Among those reporting, oilfield services provider Halliburton Co. topped estimates, and CEO Dave Lesar told investors and analysts in a conference call, "We expect that any major macroeconomic disruptions will ultimately correct themselves."

Trading was orderly for much of the day, but the final hour again saw frenetic activity, this time to the upside, with the Dow rising nearly 140 points in the last 25 minutes. The market's tone was clearly better than during the previous two weeks, when investors' heightened anxiety about credit markets and the economy sent stocks plunging. The relative calm in Friday's session, when the Dow fell 127, and Monday's trading, had more investors feeling confident that the worst of the market's losses was behind it.

Still, with back-and-forth trading a hallmark during recoveries from plunges in the past, analysts and investors were also expecting that Wall Street would be subject to volatile price swings for some time.

"We don't have any sense if this kind of a run is sustainable," said Phil Orlando, chief equity market strategist at Federated Investors. "We're groping quite literally for a bottom right here, but I'm not going to discount that we won't retest lows over the next couple of weeks."

The Dow rose 413.21, or 4.67 percent, to 9,265.43. The blue chips' gain were in line with a 4.68 percent gain registered Thursday, when the Dow jumped 401 points.

The rally marked the Dow's 23rd triple-digit move in 26 sessions. Most sessions have brought losses, however, with 11 of the past 14 showing declines.

Broader indexes also rose sharply Monday. The Standard & Poor's 500 index jumped 44.85, or 4.77 percent, to 985.40. The Nasdaq composite index rose 58.74, or 3.43 percent, to 1,770.03.

Despite the advances of recent sessions, the major indexes remain well below their peaks of a year ago. the Dow is down 34.6 percent, the S&P 500 is down 37 percent and the Nasdaq composite index is off 38.1 percent.

The credit markets were gradually responding to the series of bailout measures by governments around the world, including a joint U.S. and European plan to buy stakes in private banks to boost their lending. Demand for Treasury bills, regarded as the safest assets around, lessened Monday but remained relatively high in a sign that there was still much fear in the markets.

The three-month Treasury bill Monday yielded 1.12 percent, up from 0.82 percent late Friday. That's better than the 0.20 percent of last Wednesday, and the first time it surpassed 1 percent in more than a week.

Investors were also optimistic about the steady decline in interbank lending rates, which fell for a sixth straight day Monday. The London interbank offered rate, or Libor, for three-month dollar loans fell 0.36 percent to 4.06 percent, the biggest daily drop since January.

The benchmark 10-year Treasury note rose. The yield, which moves opposite its price, fell to 3.87 percent from 3.93 percent late Friday.

Todd Leone, managing director of equity trading at Cowen & Co., said many investors were feeling optimistic that credit is slowly becoming more available. He also believes that Bernanke's remarks, along with the fact earnings haven't been dismal, are helping markets move higher.

"People are just getting comfortable with buying again," said Todd Leone, managing director of equity trading at Cowen & Co. "We still could see another big drop, but those big drops are going to get less and less."

Investors also received a bit more detail about how Treasury Secretary Henry Paulson plans to roll out a $250 billion plan to recapitalize banks. Paulson said the government will own shares in the banks that should be paid back with a reasonable return, and expects that the investment will eventually make money.

Meanwhile, there were some optimistic data that showed the economy's health improved for the first time in five months in September as supplier deliveries and new orders strengthened, a private research group said Monday. The New York-based Conference Board said its monthly forecast of future economic activity rose 0.3 percent, a much better reading than the 0.2 percent drop expected by Wall Street economists surveyed by Thomson/IFR.

Light, sweet crude rose $2.40 to settle at $74.25 a barrel on the New York Mercantile Exchange. Last week, it sank to an almost 16-month low on worries about a deep global recession obliterating fuel demand.

The Russell 2000 index of smaller companies rose 20.41, or 3.88 percent, to 546.84.

Advancing issues outpaced decliners by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to 5.1 billion shares compared with 6.48 billion shares.

Financial markets overseas also jumped. Japan's Nikkei stock average closed up 3.59 percent. Britain's FTSE 100 rose 5.41 percent, Germany's DAX index advanced 1.12 percent, and France's CAC-40 rose 3.56 percent.

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