Wall Street Surges As Oil Retreats

Dow Jones Up 175 Pts. As Stocks Jump On Falling Oil, Inflation Forecast

(AP)  Wall Street surged higher Friday as oil retreated from this week's rally and after Federal Reserve Chairman Ben Bernanke indicated the central bank is unlikely to raise interest rates soon. The Dow Jones industrial average rose about 175 points.

Speculation that Lehman Brothers Holdings Inc. could be sold helped buoy the financial sector and the overall market. Analysts warned this week that the investment bank could book large write-downs for bad debt. But reports Friday that Korea Development Bank is considering buying the company sent investors rushing for the stock. Lehman rose $1.81, or 13 percent, to $15.53.

Investors also appeared cheered by an inflation forecast from Bernanke who said at the Kansas City Fed's annual economic symposium that inflation pressures should moderate this year amid tepid economic growth. But he also added that the inflation forecast remains "highly uncertain."

John Massey, senior portfolio manager at AIG SunAmerica Asset Management, said investors are encouraged by Bernanke's comments on interest rates and by the possibility of a buyer for Lehman.

"We're seeing the potential for maybe another white knight," he said, referring to prospects of a deal to acquire all or part of the investment bank.

The health of the financial sector and rising inflation are two of the market's greatest concerns. Although Bernanke refrained from making predictions about inflation, the market was mollified when light, sweet crude plunged $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.

In late afternoon trading, the Dow rose 176.77, or 1.55 percent, to 11,606.98 after being up more than 200 points.

Broader stock indicators also rose. The Standard & Poor's 500 index rose 11.40, or 0.89 percent, to 1,289.12, and the Nasdaq composite index rose 31.13, or 1.31 percent, to 2,411.51.

Bond prices pulled back as investors rushed from the safety of government debt to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.88 percent from 3.83 percent late Wednesday.

The dollar rose against other major currencies, while gold prices fell.

Massey cautioned against making too much of the market's moves given the light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost more than 300 points over Monday and Tuesday before ending moderately higher Wednesday and finishing mixed Thursday.

"The light volumes are really sort of the reasons behind why you've got some outsize moves. I think the issues over all for the economy and the market are fairly well understood," he said. "The market is of this mind-set that we're going to continue to be flattish to down."

He doesn't expect the stock market to more accurately reflect investor sentiment until after Labor Day, when trading volumes should pick up. Until then, he'll be looking next week at readings on consumer confidence and unemployment to determine where the economy might be headed.

Remarks Friday from Bernanke and investor Warren Buffett appeared to dim Wall Street's hopes that mortgage financiers Fannie Mae and Freddie Mac might be able to get by without a government bailout. While such a move could help prop up the government-chartered companies, which together hold or back nearly half the nation's mortgage debt, it could also wipe out shareholder equity.

While Bernanke didn't mention them by name he said one of the critical questions facing the country is how to strengthen the financial system and guard against the "moral hazard" of companies making risky choices thinking that the government will ultimately offer a safety net.

Buffett said on CNBC that Fannie and Freddie are too big to fail but that shareholder equity in those companies can be lost.

Fannie Mae fell 1 cent to $4.84, while Freddie Mac fell 19 cents, or 6 percent, to $2.97.

Linda Duessel, the equity market strategist at Federated Investors, said the financial sector is key to a broader recovery on in stocks, which are down more than 10 percent this year.

"We need to absolutely find a bottom in financials to really believe that the bear can be behind us," she said, referring to the pullback in stocks since last fall.


Drop In Commodity Prices

While most sectors gained ground Friday, some materials companies pulled back as commodity prices fell. United States Steel Corp. fell $6.51, or 4.7 percent, to $132.69, while miner Freeport-McMoRan Copper & Gold Inc. declined $3.39, or 3.6 percent, to $90.27.

In corporate news, Gap Inc. rose 93 cents, or 4.9 percent, to $19.94 after reporting late Thursday that profits in the most recent quarter rose 51 percent from a year earlier, thanks to tight inventory and cost control.

King Pharmaceuticals Inc. said it is prepared to take its bid for Alpharma Inc. directly to shareholders after the company rejected King's $1.4 billion buyout overture. King disclosed the $33 a share offer publicly for the first time Friday. Alpharma surged $10.46, or 43 percent, to $34.50, while King rose 92 cents, or 8.2 percent, to $12.16.

Pacific Sunwear of California Inc. shares fell to a 10-year low after the teen retailer's forecast disappointed investors and prompted a series of analyst downgrades. The stock fell $1.99, or 26 percent, to $5.79.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to a light 548.6 million shares.

The Russell 2000 index of smaller companies rose 10.65, or 1.47 percent, to 735.90.

Overseas, Japan's Nikkei stock average fell 0.68 percent. Britain's FTSE 100 rose 2.52 percent, Germany's DAX index rose 1.69 percent, and France's CAC-40 advanced 2.23 percent.

[pepperwood2]

Its about time Wall Street got the picture. When Mr. & Mrs. America have high fuel, energy, food & shelter to pay for there''s not much left over for the Madison Avenue Crowd to get rich on.

That''s the way it should be. AS long as the people keep getting gouged by the World Oil Speculators that have been lying & created excuses for their personal gain, then its time for the people to quit buying stock, etc.

Most of us have families to support. Not to mention that heating oil continues to be at an all time high. At $4/GAL do the math what does it cost to fill up a 275 gal heating oil tank once a month during the winter months.

The only way the people are going to get any RELIEF from these oil outlaws is make Dow Jones feel the pitch. Folks, your money talks an this is the only language these swinlers understand.

Where''s the liberal congress, jesse jackson & chavez when you need some relief. The talk is cheap. Make em suffer we''ve had enough.

[andor3]

did we drill? Republicans said that was the only way prices would come down. Could they be wrong? Could the whole drilling/inflated oil prices been a conspiracy between Big Oil and certain politicians to get public support for a bad idea? Too bad they got busted.

[ubrew12]

Valued in 2000 dollars, the DOW jones is worth 6,500, NOT 14,600.

And in the international marketplace, where increasingly investment decisions are made in this Global Marketplace, it LITERALLY is worth only 6,500. The Bush administration devalued the dollar and hoped (so far successfully) that the little American investor sheep wouldn''t see that their holdings lost half their value in the last 8 years.