Markets & Finance

Stocks Finish Higher


Investors were betting that a big drop in August new home sales would give the Fed additional cover to cut rates at its next meeting

Major U.S. stock indexes finished modestly higher Thursday as traders adjusted their portfolios in advance of the end of the quarter and investors speculated that a worse-than-expected drop in August new home sales provides Federal Reserve with more reason to cut interest rates. There was also trouble for a major private equity deal, but a new report on jobless claims beat expectations.

On Thursday, the Dow Jones industrial average was up 34.79 points, or 0.25%, to 13,912.94. The broader S&P 500 index added 5.96 points, or 0.39%, to 1,531.38. The tech-heavy Nasdaq composite index rose 10.56 points, or 0.39%, to 2,709.59.

The Dow was dragged down by General Motors (GM), which fell 3.1% as some investors soured on the new four-year contract with the United Auto Workers.

The market's advance was broad, with 22 shares gaining in price for each 11 that fell on the NYSE. Nasdaq trading breadth was 17-12 positive.

A report released Thursday showed new home sales fell 8.3% in August to a 795,000-unit annual rate. The median home price fell to $225,700 from $246,200, a 7.5% drop from a year ago.

U.S. economic growth was slower than previously thought in the second quarter. The government revised U.S. GDP growth from 4% to 3.8%, a move that was widely expected.

U.S. first-time jobless claims for the week of Sept. 22 fell 15,000 to 298,000. That's less than the 316,000 new jobless claims economists were expected.

Several policymakers at the Federal Reserve, including Chairman Ben Bernanke, spoke Thursday. But Deutsche Bank (DB) chief U.S. economist Joseph LaVorgna says they're unlikely to give clues about future rate cuts with so much economic data still to arrive before their next meeting at the end of October.

"The most important data in the near term will be that which could show consumers reining in spending (due to housing weakness or a deteriorating labor market) or an upward drift in inflation expectations," LaVorgna wrote.

The dollar sagged to fresh all-time lows against the euro on Thursday, taking the U.S. dollar index to its lowest point since its inception at the same time.

Crude oil prices soared Thursday. November West Texas Intermediate crude oil rose $2.58 to $82.88 per barrel. Traders contacted by S&P MarketScope cited a number of factors for the sharp increase: The weaker dollar, which makes it easier for foreigners to buy dollar-denominated petroleum; a growing feeling that the housing slowdown would not hurt the economy as much as previously thought, which should keep U.S. demand strong; shortages at a Cushing, Okla. distribution center; and fears about tropical storms forming in the Atlantic.

Among stocks in the news Thursday, Sallie Mae (SLM) may go to court to force private equity buyers to complete their purchase of the student lender. A group of private equity firms led by J.C. Flowers said it no longer would go forward with $25 billion deal announced in April, though it may be open to negotiation.

Bed Bath & Beyond Inc. (BBBY) reported earnings of 55 cents per share, up from 51 cents a year ago on 2.2% higher same-store sales, and 10% higher total sales. The retailer also announced a plan to buy back $1 billion of its shares.

American Airlines' parent, AMR Corp. (AMR), is being urged by a large investor to take steps to boost its stock price, including the spinoff of its frequent flyer program, the Wall Street Journal reports.

Homebuilder KB Home (KBH) reported a $6.19 per share loss in the third quarter, down from $1.60 per share a year ago, and warned of a tough 2008. Revenues were 32% lower.

Rite Aid Corp. (RAD) reported a loss of 10 cents in the second quarter, vs. a 2 cents loss a year ago. The acquisition of Brooks Eckerd stores offset a 1.1% rise in same-store sales. Total sales rose 54%. The company expects a loss of 15 to 27 cents per share in 2008.

European indexes moved higher Thursday. In London, the FTSE 100 index rose 0.83% to 6,486.4. Germany's DAX index added 0.64% to 7,853.79. In Paris, the CAC 40 index climbed 0.75% to 5,733.37.

Asian indexes rallied overnight. Japan's Nikkei 225 index rose 2.41% to 16,832.22, while Shanghai's benchmark index was up 1.33%. Hong Kong's Hang Seng index jumped 2.4% to 27,065.15.

Treasury Market

Treasury prices rose Thursday on the August new home sales plunge and the small downward revision to second-quarter GDP ahead of data on August personal income and September Chicago PMI scheduled for release Friday. The 10-year note was higher at 101-15/32 for a yield of 4.56% and the 30-year bond was up at 102-19/32 for a yield of 4.84%.

Steverman is a reporter for BusinessWeek's Investing channel.

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