Stocks Soar on Regulatory Hopes

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According to a CNBC report, Morgan Stanley will begin official merger negotiations with Wachovia imminently. Morgan Stanley is continuing efforts to raise capital from the Chinese government. Earlier, CNBC reported Mack is committed to keeping the firm independent. In addition to Wachovia, the company has talked to Citigroup (C; +18.7%) and foreign banks, according to the report.

Meanwhile, amid worries about money market funds in light of the Putnam news, State Street (STT; -8.9%) said it remained well-capitalized and has ample sources of liquidity in the unlikely event of having to consolidate any of its conduits. It notes that it raised $2.8 billion in capital in June and has no plans for additional equity issuance. Moreover, none of its money market funds have seen their net asset values (NAVs) decline below $1 -- an occurrence commonly called "breaking the buck" -- nor does State Street have exposure to AIG, Lehman, WaMu, Wachovia, Merrill or Morgan.

Bank of New York Mellon (BK; -4.6%) said that that it has isolated Lehman assets in a separate structure that had been part of an institutional cash reserve fund (less than 1% of its lending and fund activity), informing clients and monitoring closely all market-related activity in its money market, cash and securities lending operations.

Washington Mutual (WM; +48.8%) shares were seen higher Thursday on various media reports that firm has put itself up for sale.

Standard & Poor's Ratings Services said it revised the CreditWatch status of most of its ratings on American International Group (AIG; +31.2%) and affiliated companies to CreditWatch developing from CreditWatch negative, and that it raised its short-term counterparty ratings on AIG, its guaranteed subsidiaries, and International Lease Finance Corp. to A-1 from A-2. Standard & Poor's also lowered ratings on various subsidiaries' preferred shares to B from BBB.

On Thursday, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank announced coordinated liquidity measures for global markets. According to a Fed statement, the measures are "designed to address the continued elevated pressures in U.S. dollar short-term funding markets."

The Fed authorized a $180 billion expansion of its temporary reciprocal currency arrangements, known as swap lines, to provide dollar funding for both term and overnight liquidity operations by the other central banks. The Fed also authorized increases in the existing swap lines with the ECB and the Swiss National Bank to support the provision of U.S. dollar liquidity in amounts of up to $110 billion by the ECB and up to $27 billion by the Swiss National Bank. New swap facilities were authorized with the Bank of Japan ($60 billion), the Bank of England ($40 billion), and the Bank of Canada ($10 billion).

Meanwhile, the New York Fed conducted a $50 billion overnight repo to inject much-needed temporary reserves into the banking system, following closely on the heels of the coordinated liquidity facility increase overnight.

U.S. jobless claims rose 10,000 to 455,000 in the week ended Sept. 13, following the unrevised 445,000 level the week before. The 4-week moving average was 445,000 versus 440,000 previously. Continuing claims fell 55,000 to 3,478,000 in the week ended Sept. 6. The claims print was higher than expectations, though were likely distorted by the impact of Hurricane Gustav, notes Action Economics.

The U.S. Philadelphia Fed rebounded sharply to 3.8 in September, well above the August reading of -12.7, and the -10 that markets had expected. The new orders index jumped to 5.6 from -11.9 in August. In addition, the six-month business conditions index improved to 30.8 from 27.6. Prices paid fell to 31.5 from 57.5 and the employment component edged up to -0.9 from -1.1, though it remains negative.

The U.S. index of leading economic indicators fell by a greater than expected 0.5% in August, following the -0.7% reading in July, and hit its lowest level since October 2004. Negative readings were seen for the average workweek, jobless claims, deliveries, capital goods orders, building permits and money supply. Support was provided to the index from gains in stock prices, the yield curve, consumer expectations and, to a lesser degree, consumer goods orders.

October NYMEX crude oil futures were trading at $96.61 per barrel in New York, down 55 cents, after peaking at $102.24 earlier in the session.

December gold futures, which soared $70 Wednesday, were up $49.70 to $900.20 at Thursday afternoon in a continued flight to safety from U.S. financial crisis plagued stocks market in U.S., Europe, and Russia. Some analysts say gold could rise to $1000 short term and grind higher after that. Wednesday's surge was the biggest since 1980.

Among other stocks in the news Thursday, FedEx Corp. (FDX; +3.5%) reported first quarter earnings per share of $1.23, vs. $1.58 one year earlier, as higher operating costs offset an 8% sales rise. The company expects second quarter EPS to be in the range of $1.40-$1.60, vs. $1.54 a year ago. FedEx reaffirmed its its EPS guidance of $4.75-$5.25 for fiscal 2009, which reflects weaker global economic conditions and incorporates current fuel prices and the related impact of fuel surcharges.

ConAgra Foods (CAG; +2.7%) posted first quarter earnings per share continuing operations (excluding items) of 27 cents, vs. 26 cents one year earlier, on a 17% sales rise. ConAgra slightly lowered its fiscal 2009 outlook; it now sees EPS from continuing operations to be slightly above $1.50 (excluding items).

Constellation Energy Group (CEG; -2.3%) reached a tentative agreement with MidAmerican Holdings under which MidAmerican would purchase all of CEG's outstanding stock for $26.50 a share. The transaction is expected to be completed, pending due diligence and the required regulatory and shareholder approvals, in the second quarter of 2009. MidAmerican is owned by Warren Buffet's Berkshire Hathaway (BRKA; +2.6%).

European markets turned lower in late trading Thursday. In London, the FTSE 100 index fell 0.66% to 4,880. In Paris, the CAC 40 index dropped 1.06% to 3,957.86. Germany's DAX index added 0.04% to 5,863.42.

Asian markets finished lower Thursday. Japan's Nikkei 225 fell 2.22% to 11,489.30. In Hong Kong, the Hang Seng index edged lower by 0.03% to 17,632.46.

Treasury market

Bonds plunged late in Thursday's session following reports the Bush administration might be working on an RTC-type program designed to deal with the financial crisis that has crippled Wall Street the past month or so and the housing industry for the past year. The 30-year bond was down 24/32 to 106-10/32 for yield of 4.131%. The 10-year note was off 27/32 to 104 for yield of 3.525% and the 2-year note was off 09/32 to 101-03/32 for yield of 1.805%.