U.S. Stocks Battle Back As Financial Sector Turns Around Again
NEW YORK (MarketWatch) -- U.S. stocks on Thursday battled back from another bout of sharp declines as investors considered whether the infusion of tens of billions of dollars into the financial system by central banks around the globe would ease the flow of credit.
"The fearless forecast is it will be volatile. Nobody believes it when it is a rally, but the boat is getting really crowded on the negative side, and it doesn't take much tinder to set it off when you have so many crowded on one side," said Bill Stone chief investment strategist, PNC Wealth Management.
Trading in a more than 360-point range featuring triple-digit swings on either side of zero, the Dow Jones Industrial Average at last check was up 53.82 points at 10,663.48, with 16 of its 30 components trading higher.
Dow gainers included American International Group Inc. , which on Monday will be replaced by Kraft Foods Inc. in the blue-chip benchmark.
"We are refraining at this point from adding another stock in the financial industry because of the extremely unsettled conditions," said Robert Thomson, managing editor of The Wall Street Journal, in a statement.
Knocking AIG off the Dow will leave the index underweighted in financials, a situation to be addressed in "due course," added Thomson.
AIG advanced 6.3%, with another Dow component, automaker General Motors Corp. , also staging a strong advance, up 7.6%.
After fronting blue-chip declines earlier on, shares of Citigroup Inc. bounced 5.9% higher.
The S&P 500 Index was up 5.52 points to 1,104.37, with financials leading the late-afternoon gains.
The sector's earlier declines had focused on the commercial-paper processing centers, including Bank of New York Mellon Corp. , Northern Trust Corp. and State Street Corp.
"It seems like there is a new concern every day, with residue from what happened over the weekend, and issues of equity at Lehman disappearing and the fixed-income securities being priced well below what we've seen in the past," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
Bucking the downward trend in financials, Freddie Mac gained 17.9%. The government-sponsored mortgage buyer earlier reported the 30-year fixed-rate mortgage fell last week to an average 5.78%, its lowest level since February.
The Nasdaq Composite Index was 9.32 points higher to 2,108.17.
Fed moves
Helping shore up sentiment ahead of the opening bell, the Federal Reserve announced it would provide major central banks with an additional $180 billion to be injected into money markets through overnight and term loans. .
Hoping to halt a swoon in its stock price, brokerage Morgan Stanley is reportedly eyeing a merger with Wachovia Corp. or another bank.
Washington Mutual Inc. , the nation's biggest thrift, is reportedly looking for a buyer, with Wells Fargo Co. , J.P. Morgan Chase & Co. and HSBC Holdings PLC viewed as potential bidders. .
The speculation played out against a backdrop in which U.K. bank Lloyds TSB agreed to buy troubled mortgage lender HBOS for $22.2 billion in a deal backed by British authorities as a means of helping stabilize the financial markets.
Crude moves
The ongoing turmoil in the financial markets had gold extending gains in the wake of a $70-an-ounce spike on Wednesday, with gold futures rising $46.5 to end at $897 an ounce on the New York Mercantile Exchange. .
"Gold spiking has fear trade written all over it," said PNC's Stone.
Crude futures declined, with the benchmark contract falling 76 cents to $96.40 a barrel on Nymex.
Early economic data, which recently has taken a back seat to the crisis in the financial markets, included a report from the Labor Department, which said claims for jobless benefits climbed last week, with the four-week average up to 445,000. .
Separately, the Conference Board reported tha its index of leading economic indicators fell 0.5% in August, after a 0.7% decline in July.
"The economy right now is so slow that it doesn't have much cushion for shocks like the recent bailouts and bankruptcies," according to Ken Goldstein, an economist at the research group. .
On the plus side, a reading of manufacturing activity in the Philadelphia region improved to a 3.8 in September from a negative 12.7 in August, with the latest reading from the Philadelphia Federal Reserve the first in positive turf since November.
On Wednesday, the Dow industrials shed 449.36 points to close at 10,609.66, its lowest close since Nov. 9, 2005, with the equities market hammered as investors panicked about the potential for further failures in the financial sector.
By Kate Gibson