Stocks: A Positive End to a Horrible Month

Major U.S. indexes finished in the green Friday, led by gains in beaten-down financial issues. But the Dow tumbled 14% in October, with the S&P 500 down 17%

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U.S. stocks, finished an ugly month on a positive note Friday. Major indexes closed higher, led by a rebound in financial and other issues that got battered in October, one of the market's worst months in many years. Friday's rally came as money managers made end-of-month adjustments to client portfolios and bargain hunters bought issues at prices reduced by recent sell-offs, according to S&P MarketScope..

Traders weighed a fresh batch of U.S. economic reports Friday. September personal income rose 0.2%, while consumption fell 0.3%. The employment cost index rose 0.7% in the third quarter. The October Chicago purchasing managers' index (PMI) fell to 37.8 from 56.7 in September, while the University of Michigan October consumer sentiment index fell to 57.6 from 70.3 in September.

Bonds were mixed as traders eyed a speech by Federal Reserve chairman Ben Bernanke on the mortgage crisis. The dollar index was higher. Gold futures were lower. Oil futures rebounded from earlier weakness to finish higher.

On Friday, the Dow Jones industrial average finished higher by 144.32 points, or 1.57%, to 9,325.01. The broader S&P 500 index added 14.65 points, or 1.54%, to 968.74. The tech-heavy Nasdaq composite index gained 22.43 points, or 1.32%, to 1,720.95.

On the New York Stock Exchange, 23 stocks were higher in price for every eight that declined. The ratio on the Nasdaq was 21-7 positive.

Friday's gains proved a partial palliative to a month of misery. The Dow fell 14.1% in October, the worst month for the blue-chip benchmark since August 1998, when it dropped 15.1%. Looking back at Dow performance since the 1920s, October 2008 was the 16th worst month on record.

The S&P 500 dropped 16.8% in October, the worst drop in the last 58 years of the index except for the 22% decline in October 1987.

Among the blue-chip names leading the market higher Friday: JP Morgan Chase (JPM), which gained 9% after saying it will modify terms on $110 billion of mortgages and delay foreclosures to help ease the housing crisis.

Morgan Stanley (MS), American Express (AXP), and Merrill Lynch (MER) were among other financial issues gaining in Friday's session.

Equity markets in Europe finished with solid gains Friday, with London stocks up 2.00%, Paris higher by 2.33%, and Frankfurt up 2.44%. Markets slumped in Asia, with Tokyo stocks falling 5.01%, Hong Kong down 2.52%, and Shanghai lower by 1.97%.

Next week, of course, the main focus will be on the U.S. presidential election. But the week's economic calendar will also have its share of important items, as market attention will be more tightly focused on the first round of major economic reports for October. Surveys by the Institute for Supply Management on manufacturing and nonmanufacturing activity will offer key readings early in the week, but the markets will be especially interested in the Labor Dept.'s employment report on Friday, Nov. 7.

On Friday, Oct. 31, the Bank of Japan cut its benchmark overnight interest rate by a less than expected 20 basis points to 0.3% in a tight vote, joining earlier moves by the U.S. Federal Reserve and other central banks to blunt the global financial downturn. The bank also seemed to confirm fears that Japan was heading into recession by lowering its growth forecast for the year to around zero, citing higher energy prices and weakening export demand, according to a New York Times report.

According to press reports Friday, Barclays Plc (BCS), Britain's second-biggest bank, will raise 7.3 billion pounds ($11.8 billion) by selling securities to investors including funds in Abu Dhabi and Qatar to restore capital without tapping the U.K.'s bailout plan. Barclays will sell 5.8 billion pounds of convertible notes and preferred shares paying as much as 14% annual interest to the Mideast investors, the London-based company said in a statement. The bank also plans to sell as much as 1.5 billion pounds of securities today to new and existing shareholders.

Bloomberg reported American International Group (AIG), the insurer bailed out by the U.S., reduced its debt under two credit lines to $83.5 billion by using cash from the Federal Reserve's commercial paper program. The insurer got as much as $20.9 billion from the program, which swaps commercial paper for cash, AIG spokesman Nicholas Ashooh said in an interview. The terms of the commercial paper funding are better than the U.S. loan made last month to save New York-based AIG from collapse, he said.

According to a story on Reuters newswire, a deal to merge General Motors (GM) and Chrysler LLC has hit an impasse after the Bush administration ruled out funding for it, citing three people with direct knowledge of the talks. This puts any merger of the struggling automakers on hold until after the U.S. presidential election, the sources said.