Stocks jump on reports of plan for bad bank assets
NEW YORK (AP) -- Financial stocks led Wall Street higher Wednesday on investor hopes the Obama administration will create banks to absorb the bad assets weighing down the financial system.
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The Standard & Poor's 500 index, a benchmark for the overall stock market, rose for the fourth straight session. It hasn't closed higher four straight days in two months.
Investors have been worrying that banks won't be able to resume more normal lending without somehow dumping or walling off the bad debt that is corroding their balance sheets. And the economy can't recover from a yearlong recession without improvements in lending and consumer confidence.
Bank shares jumped on the news: Wells Fargo & Co. gained 24 percent, Citigroup Inc. jumped 22 percent and Bank of America added 18 percent.
Investors are also more upbeat as the House nears a vote on an $825 billion stimulus plan that contains a mix of new spending and tax cuts. Wall Street is hopeful the stimulus and other measures will help free the economy from its worst recession in decades.
Wall Street's focus on Washington also extends to the Federal Reserve, which is all but certain to leave its federal funds rate at a record low Wednesday to try to help the economy by making it cheaper to borrow money.
It's unclear whether the central bank might take any new steps to help the economy, however. In December, the Fed took the unprecedented step of slashing its key rate from 1 percent to a range of zero to 0.25 percent. The Fed's statement announcing any actions, and its assessment of the economy, is due at 2:15 p.m. EST.
Bill Dwyer, chief investment officer at MTB Investment Advisors in Baltimore, said any steps Washington can take to revive the economy could help the market. He said the plan to help neutralize bad bank assets could speed a recovery.
"We aren't really going to see any great economic news anytime soon so if there is any positive movement in Washington toward the problem, that would stabilize the decline," he said.
In late morning trading, the Dow Jones industrial average rose 135.56, or 1.66 percent, to 8,310.29.
Broader stock indicators also rose. The S&P 500 index jumped 21.32, or 2.52 percent, to 867.03. The index last recorded four straight gains in late November.
The Nasdaq composite index rose 39.79, or 2.64 percent, to 1,544.69.
The Russell 2000 index of smaller companies rose 11.32, or 2.48 percent, to 466.86.
The number of stocks rising outpaced those that fell by 6 to 1 on the New York Stock Exchange, where volume came to 375.1 million shares.
Bond prices fell as stocks gained. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.55 percent from 2.53 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.15 percent from 0.13 percent Tuesday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude slipped 2 cents to $41.56 a barrel on the New York Mercantile Exchange.
The advance in financial stocks gave support to the overall market. CNBC reported Tuesday that the Obama administration is considering a plan to buy bad assets.
Wells Fargo jumped $3.92, or 24 percent, to $20.11 after the company said it would maintain its dividend. The company reported results that included write-downs to reduce is exposure to the risky assets of Wachovia Corp. Wells Fargo also added to its reserves for future losses. The company acquired Wachovia on Dec. 31.
Other banks charged higher on the notion that Washington could vacuum up some of their bad debt. Citigroup Inc. rose 77 cents, or 22 percent, to $4.32, while Bank of America Corp. rose $1.16, or 18 percent, to $7.66. State Street Corp. surged $5.82, or 30 percent, to $25.44.
Some analysts attributed the run-up in banks partly to investors buying up those stocks to cover bets they made. Investors who sell a stock "short" are betting a stock would fall. They are forced to step in and buy the stock if it appears they were wrong and could lose money. This buying, in turn, can drive stocks higher.
Investor sentiment has been buoyed this week by somewhat improved corporate results. After weeks dominated by terrible results from the banking industry, investors have welcomed news that some companies were still able to gather profits in the final three months of 2008 despite the weak economy. Companies from United States Steel Corp. to American Express Co. turned in earnings that helped lift stocks moderately Tuesday.
On Wednesday, airplane maker Boeing Co. rose $1.10, or 2.6 percent, to $44.32 after reporting it swung to a fourth-quarter loss because of a labor strike and charges related to its 747 passenger jet and a legal reserve.
Investors didn't like all of the numbers. AT&T said its fourth-quarter earnings fell 23.6 percent as rising costs offset strength in its wireless business. The stock fell 68 cents, or 2.6 percent, to $25.25.
Overseas, Japan's Nikkei stock average rose 0.56 percent. In afternoon trading, Britain's FTSE 100 rose 2.28 percent, Germany's DAX index jumped 4.47 percent, and France's CAC-40 rose 4.06 percent.
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