Markets & Finance

Stocks Stage Late Rally


Investors shrugged off rumors of a Goldman Sachs writedown to do some bargain hunting. Oil pushed ever closer to $100 per barrel

Stocks moved higher Tuesday on some good news from technology, energy and agricultural stocks. The market's late-day rally came after the batting down of yet another round of rumors about big subprime losses at a big Wall Street firm.

On Tuesday, the Dow Jones industrial average rose 117.54 points, or 0.87%, to 13,660.94. The broader S&P 500 index added 18.1 points, or 1.2%, to 1,520.27. The tech-heavy Nasdaq composite index was up 30 points, or 1.07%, to 2,825.18.

Investors seemed to ignore troubling trends, including oil's move ever closer to a record price of $100 per barrel. Gold also hit highs and the U.S. dollar continued to fall against the Euro.

Even as the housing sector continues to show weakness, "This market is focusing on various sectors of the economy that continue to do well," says Peter Cardillo, chief market economist at Avalon Partners.

Action in the broader market was modestly positive, with 17 stocks rising in price for every 15 that posted gains on the NYSE. Nasdaq breadth was 15-14 positive.

Stocks briefly moved into negative territory at midday on rumors of another impending large Wall Street write-down. Action Economics reports that fresh talk of $11 billion in losses at Goldman Sachs (GS) was making the rounds again on Tuesday. Goldman denied write-off rumors for the second day in a row, according to a Reuters report.

The quick reactions to rumors reflects deep anxiety on Wall Street about major financial institutions' exposure to losses on complex credit instruments. Cardillo expects stocks to trade within a range until the end of the year. Many investors expect sluggish growth but also expect the U.S. to avoid a full-blown recession, he says. "We've probably seen the highs for the year, and I don't think we're going to make new lows," he says.

Oil prices were back hitting record highs on Tuesday. After hitting an all-time intraday high of $97.10 per barrel, December NYMEX crude futures ended the session $2.72 higher at $96.70 per barrel. Traders may have been spooked by news of bombings in Afghanistan and an attack on an oil pipeline in Yemen. Comex December gold futures rose to $823.40 per ounce Tuesday, and the Euro rose to $1.4556.

A measure of U.S. retail spending, the ICSC UBS chain store sales index, climbed 1% last week, after a 0.1% increase the week before. "That's the best performance in three weeks, and comes despite still higher gas prices and warm weather," Action Economics says.

Among stocks in the news Tuesday, Sun Microsystems (JAVA) was upgraded by analysts at Citigroup from sell to buy after it reported first quarter earnings. Sun posted earnings of 3 cents per share, vs. a 2 cent loss a year ago. Revenue rose slightly and gross profit margins improved.

Valero Energy (VLO) saw profits fall 20%, to $2.09 per share, vs. $2.55 a year ago, while revenue rose 2%. But results seemed to beat analysts' estimates handily, and the stock jumped 4.8%.

Archer Daniels Midland (ADM) shares rose almost 7% after reporting earnings of 68 cents per share, vs. 61 cents a year ago. Sales rose 35%. Lower profits on ethanol production were offset by strong profits from its traditional food business.

IndyMac Bancorp (IMB) shares were down 2% as the mortgage lender posted a loss of $2.77 per share, vs. earnings of $1.19 a year ago.

Beazer Homes USA (BZH) plans to take a $230 million charge as the builder plans to abandon land option contracts and take other steps to deal with the slow housing market. The firm will also suspend its quarterly dividend. Investors weren't surprised, and sent the stock up almost 10%.

The Nasdaq Stock Market (NDAQ) reportedly will buy the Philadelphia Stock Exchange for $500-$600 million. CNBC reported the news late on Tuesday. Nasdaq shares rose about 2%.

European equity indexes were higher on Tuesday, though gains faded in late trading. In London, the FTSE 100 index was up 0.21% to 6,474.90. Germany's DAX index moved 0.25% higher to 7,827.19. In Paris, the CAC 40 index increased 0.44% to 5,709.42.

Asian markets recovered a bit from big declines on Monday. In Japan, the Nikkei 225 index edged down 0.12% to 16,249.63. In Hong Kong, the Hang Seng index rose 1.71% to 28,438.13. The Shanghai composite index slid 1.74% to 5,536.57.

Treasury Market

Bonds were moving lower in price Tuesday. The ten-year note fell 10/32 to 102-31/32 for a yield of 4.37%, and the 30-year bond sank 22/32 to 105-10/32 for a yield of 4.67%.

Steverman is a reporter for BusinessWeek's Investing channel.

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