U.S. Stocks Mildy Higher On Auto Bailout Hopes; GM, Ford Fall

NEW YORK (MarketWatch) -- U.S. stocks rose 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 earlier gains.

"It appears that there's some sort of a snag," said Peter Cardillo, chief market economist at Avalon Partners. "But the market knows that [the bailout] is going to happen in one shape or another."

A jump in the price of oil also helped lift energy shares, providing support for the overall market, thanks to "President-elect Obama's plan to boost this economy," Cardillo said.

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 58 points, or 0.6%, at 8,745, 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 1.2%.

Leading the gains on the blue-chip average, shares of aluminum giant Alcoa Inc. were up 6.5%.

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," said Ashraf Laidi, currency strategist at CMC Markets.

"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 3%. Oil rallied amid expectations that the Organization of the Petroleum Exporting Countries will deliver big production cuts.

Among blue-chips, Chevron Corp. shares gained 4%, while those of Exxon Mobil Corp. rose 2%.

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

"We're in the midst of a year-end rally," said Avalon's Cardillo, noting the market's gains so far in December. "But the market will also have to prepare itself for a horrible fourth-quarter earnings season."

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

Shares of Rio Tinto

surged 28% 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 will keep its dividend for 2008 at last year's level of $1.36.

The Nasdaq Composite was up 11 points, or 0.8%, at 1,559.

Among technology shares, Electronic Arts slumped 12% 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 into the red. Shares of American International Group Inc. 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 had retreated Tuesday as a round of gloomy earnings projections helped trigger profit-taking from Monday's sharp gains.

Trading volumes remained light Wednesday, with 926 million shares exchanging hands on the New York Stock Exchange and 614 million shares trading on the Nasdaq stock market. Advancing issues topped decliners by 2 to 1 on both the NYE 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 dollar was under slight pressure 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 13%.

By Nick Godt