Markets & Finance

Stocks Finish with Gains


Good news arrived from Oracle, but Bear Stearns reported its first-ever quarterly loss. MBIA shares tumbled on word of higher CDO exposure

Stocks closed higher Thursday after drifting at mixed levels earlier in the session. The Nasdaq index outperformed other market benchmarks after Oracle (ORCL) reported strong earnings.

Traders also weighed news that Bear Stearns (BSC) and MBIA (MBI) each took tough blows from the ongoing credit crisis, plus economic news including declines in the index of leading indicators and the Philadelphia Fed index.

On Thursday, the Dow Jones industrial average finished higher by 38.37 points, or 0.29%, at 13,245.64. The broader S&P 500 index was up 7.12 points, or 0.49%, to 1,460.12. The tech-heavy Nasdaq composite index added 39.85 points, or 1.53%, to 2,640.86.

Action in the broader market Thursday was mostly positive, with 18 shares gaining in price for every 14 that declined on the New York Stock Exchange. Nasdaq breadth was 19-11 positive. Trading was slow in the runup to the Christmas holiday next Tuesday.

The market could see some volatility as quadruple witching -- when the monthly stock and index option expirations coincide with the quarterly expiration of stock and index futures contracts -- kicks off at the close of Thursday's trading, says S&P.

Wall Street investment bank Bear Stearns posted its first-ever quarterly loss due to exposure to subprime-backed securities and other risky debt. Shares were up less than 1% Thursday.

Financial guaranty firm MBIA lost nearly one fourth of its value Thursday after reports that the company disclosed an updated list of its exposure to collateralized debt obligations, including $8.1 billion of a higher risk class known as "CDO-squareds". The news helped push financial shares lower Thursday.

Also Thursday, U.S. jobless claims ominously pushed higher, rising 12,000 to 346,000 in the last week. Though volatile, the claims figure is closely watched for early signs of economic weakness. The four-week average rose to the highest level since October 2005: 343,000, vs. 338,750 a week ago.

Thursday's final report on the gross domestic product in the third quarter showed no change from a previous estimate: The economy grew at a 4.9% rate in the third quarter. Personal consumption was up 2.8%.

The Conference Board announced that its index of leading indicators fell 0.4% in November, in line with market expectations. The index had dropped 0.5% in October. The consecutive large drops increase fears of recession. The rule of thumb is that three significant declines in a row foretell a downturn, but the rule hasn't worked well in recent years, according to S&P MarketScope.

The Philadelphia Fed's business outlook survey slid into negative territory in December, falling to negative 5.7 from positive 8.2 in November. The market had expected a smaller drop, to 6.8. The expectations index also dropped, but remained positive, falling to 7.7 from 11.6.

Added to the drop seen in the Empire State report Monday, the data point to a weakening of the manufacturing sector, notes S&P Economics, confirming the view that the economy will weaken sharply after the strong third quarter.

Tony Crescenzi of Miller Tabak in New York said the Philly Fed results are "indicative of trends consistent with increased odds of economic recession, particularly when put in the context of other data such as this morning's initial jobless claims."

The Federal Reserve auctioned $20 billion in 35-day credit in an effort to flood the stretched financial system with liquidity by giving banks the reserves to get them through the end of the year. Thursday's auction is the second in a week.

NYMEX February crude oil futures fell 18 cents to $91.06 in slow pre-holiday trading as players adjusted portfolios for the new year.

Among stocks in the news Thursday, Bear Stearns reported a $6.90 per-share loss in the fourth quarter, vs. earnings of $4 a year ago, as the investment bank continued to be hurt by losses on bad debt. Bear Stearns took writedowns of $1.9 billion in the quarter. Its net revenue was a negative $379 million.

Oracle reported earnings of 25 cents per share, vs. 18 cents a year ago, as revenues rose 28%. Next quarter, Oracle expects software sales to rise 15 to 25%.

FedEx (FDX) posted better-than-expected earnings of $1.54 per share, vs. $1.64 a year ago. High fuel prices and a weaker economy hurt profits even as revenues rose 5.9%. The firm expects EPS of $1.15 to $1.30 next quarter.

Nike (NKE) reported earnings of 71 cents, vs. 64 cents a year ago. Sales jumped 14%, and Nike says future orders worldwide are 13% higher than a year ago.

Accenture (ACN) reported earnings of 60 cents, vs. 46 cents a year ago. Revenue rose 18%. The firm raised earnings guidance for 2008 by 15 cents per share.

Activision (ATVI), citing strong demand for its video games this holiday season, raised its third quarter quidance by 10 cents per share and its revenue expectations by 12% to $1.23 billion.

European indexes ended mostly higher Thursday. In London, the FTSE 100 index was up 0.7% to 6,328.70. Paris' CAC 40 index rose 0.05% to 5,500.22, and in Germany the DAX index moved 0.36% higher to 7,865.70.

In Asia, Tokyo's benchmark index, the Nikkei 225, edged up 0.01% to 15,031.60. In Hong Kong, the Hang Seng index edged down 0.05% to 27,017.09, while on the Chinese mainland, the Shanghai Composite was up 2.18% to 4,941.78.

Treasury Market

Treasuries fell slightly Thursday on the back of some mild profit taking after gains in the past three consecutive sessions. The 10-year note eased 03/32 to 101-22/32 for a yield of

4.04%, while the 30-year bond fell 09/32 to 108-22/32 for a yield of 4.67%.

Steverman is a reporter for BusinessWeek's Investing channel.

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