Thursday, September 25, 2008

Stocks jump on bailout hopes

Stocks rallied Thursday morning as optimism that a deal on the $700 billion bank bailout plan is near tempered the latest signs of economic distress - including GE's profit warning and a jump in jobless claims to a seven-year high.

The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all jumped an hour into the session, with the Dow up over 200 points.

Stocks struggled Wednesday as the bank rescue plan seemed to hit an impasse as officials warned that delaying passage could be disastrous for the economy and lawmakers urged caution amid the size and scope of the deal.

But Thursday brought optimism that a modified form of the deal could see passage, following President Bush's speech Wednesday night and comments from congressional lawmakers.

That optimism countered the session's negatives, including GE (GE, Fortune 500)'s warning, a seven-year high for jobless claims, weak durable goods orders, a report that showed new home sales fell to a 17-year low, and a falling dollar.

A deal nears: After two days of heated congressional debate, a deal on the proposed $700 billion bailout plan appears to be near. (Where things stand).

President Bush made the case for the deal in a televised address Wednesday night, warning that the country could slip into a "financial panic" if swift action is not taken.

While earlier, congressional lawmakers seemed to be working through key sticking points on the deal - which would get soured mortgage assets

Over the last two days, Secretary Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke have argued that failure to enact a deal could be disastrous for the economy, for businesses and for individuals.

But lawmakers had been concerned about the size and scope of the package. Concerns have been raised about whether the plan offers taxpayers enough protection, allows for enough government oversight and limits pay packages for executives whose companies participate.

The plan would allow the Treasury to buy battered assets from troubled banks to be held and sold later for a profit, helping the firms clear up their balance sheets and hopefully start lending to each other again. This would in theory loosen up the jammed credit markets.

Businesses depend on the credit markets to function on a daily basis, and the absence of ready capital has threatened to stall the broader financial system.

Oil and gold: Oil prices were volatile Thursday morning. U.S. light crude oil for November delivery fell 31 cents to settle at $105.42 a barrel on the New York Mercantile Exchange after tumbling more in the early going.

Oil prices had plummeted over $55 after peaking at $147.27 a barrel on July 11, as investors bet that sluggish global growth will diminish oil demand. But prices have soared in the last few weeks as the financial crisis has intensified and investors sought hard assets to put their money into.

COMEX gold for December delivery fell 4.80 to $890.20 an ounce. Like oil, gold prices had also rallied during the biggest periods of unrest over the last few weeks.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.82% from 3.80% late Wednesday. Treasury prices and yields move in opposite directions.

The 3-month Treasury bill, seen as the safest place to park money in the short term, rose to 0.58% from 0.45% Wednesday, suggesting investors were a little less risk-averse than in recent sessions.

Treasury prices have been rallying recently and yields tumbling as nervous stock market investors have looked for safer areas to park their cash. The three-month Treasury bill fell to a 68-year low around 0% last week, demonstrating the utter lack of interest in risk-taking amid the financial market crisis.

Other markets: In currency trading, the dollar fell against the euro and the yen.

Gas prices fell for the eighth day in a row, according to a nationwide survey of credit card activity. (Full story).

In global trade, European markets were mostly higher at midday and Asian markets ended lower

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