U.S. Stocks Rise On Auto Bailout Hopes

NEW YORK (MarketWatch) -- U.S. stocks remained firmly higher on Wednesday, boosted by progress on a bailout of the U.S. auto industry, even as opposition to the plan from several Senate Republicans shaved off earlier gains.

"Markets are bracing for what is now a tentative $15 billion package for Detroit," said Ashraf Laidi, currency strategist at CMC Markets.

House Democrats said they were planning to hold a vote later Wednesday on $15 billion in bridge loans for the struggling U.S. auto industry after they reached agreement on the aid with the White House. But some Senate Republicans said they were wary of the plan and threatened to block it.

The Dow Jones Industrial Average was up 98 points, or 1.1%, at 8,788, well off an earlier high of 8,879.

Shares of General Motors Corp. reversed earlier gains and were recently down 2%, and Ford Motor Co. shares dipped 4%.

Leading the gains on the blue-chip average, shares of aluminum giant Alcoa Inc. were up 6%.

Besides the auto bailout, growth-oriented sectors in the market remained supported by hopes of big infrastructure spending by the government.

"President-elect Obama's resounding push for an infrastructure-based stimulus package of more than $700 billion and a possible Congressional vote over as many as three bridge loans to US automakers have served to produce a rally this week," CMC's Laidi said.

"These announcements have proven to be a vital stepping stone for a much-anticipated bear market leap," he said. "But with no more details from Obama's stimulus until next year, the onus falls on Capitol Hill's handout to Detroit."

The energy sector was the biggest gainer on the S&P 500, as crude-oil futures gained 8%. Oil rallied amid expectations that the Organization of Petroleum Exporting Countries will deliver big production cuts.

Among blue-chips, Chevron Corp. gained 4%, while those of Exxon Mobil Corp. rose 2.5%.

The S&P 500 index was up 7 points, or 0.8%, at 896.

Also helping support the broad market, the materials sector was up 2.7%.

Shares of Rio Tinto

surged 25% after the Anglo-Australian miner said it will slash 14,000 jobs globally, pare net debt by $10 billion by the end of 2009 and lower "controllable operating costs" by at least $2.5 billion a year in 2010. Rio also trimmed its estimated net capital expenditure for 2009 to $4 billion from $9 billion, but added it'll keep its dividend for 2008 at last year's level of $1.36.

The Nasdaq Composite was up 16 points, or 1%, at 1,564.

Among technology shares, Electronic Arts slumped 14.8% after the video-game maker said it expects fiscal 2009 net revenue and earnings to be below the outlook announced in October due to lower-than-expected sales in North America and Europe.

The financial sector slipped in the red. Shares of American International Group Inc. , however, fell nearly 10%. The New York insurer, owes Wall Street firms about $10 billion for speculative trades that went bad, people familiar with the matter told The Wall Street Journal.

Stocks retreated Tuesday as a round of gloomy earnings projections helped trigger profit-taking from Monday's sharp gains.

Trading volumes remained light, with 604 million shares exchanging hands on the New York Stock Exchange and 385 million shares trading on the Nasdaq stock market. Advancing issues topped decliners by 2 to 1 on both the NYSE and Nasdaq.

Economy

The Mortgage Bankers Association said Wednesday that U.S. mortgage applications decreased a seasonally adjusted 7.1% for the week ended Dec. 5 compared with the final week of November.

The U.S. Treasury will release the November federal budget statement at 2 p.m. EST.

"Market participants may be more focused on developments related to the auto bailout," wrote economists at RDQ Economics in New York.

The dollar was under slight pressre against major currencies. The euro rose 0.8% to $1.3015, while the dollar rose 0.5% versus the yen to 92.79 yen.

In other economic news, the restaurant industry, a major employer in the U.S., is cutting jobs as consumers spend less on meals or don't dine out at all and as food-ingredient costs surge, The Wall Street Journal reported, citing Bureau of Labor Statistics data.

Major chains -- like Starbucks and Chili's parent Brinker -- are closing branches and independent eateries are shutting down, the Journal reported. Shares of Starbucks gained 2%, while those from Brinker jumped 14%.

By Nick Godt