Stocks rise after Countrywide gets financing
EmptyNEW YORK -- Stocks advanced solidly Thursday, led by strong gains among the blue chips and mortgage lender Countrywide Financial Corp., which signaled a possible thawing in the credit markets with the announcement it had lined up additional financing.
The Dow Jones industrial average rose by more than 130 points after General Motors Corp. surged 10% amid reports that talks between the automaker and workers over the thorny issue of health care costs have perhaps been fruitful. Meanwhile, McDonald's Corp. closed at an all-time high after boosting its dividend and bond prices fell sharply.
Investors, who have been nervous about the economic fallout from rising mortgage defaults and tightness in the credit markets, were relieved to hear Countrywide -- the nation's largest mortgage lender -- secured $12 billion in credit.
"It appears that this credit crunch may not be as bad as some people thought," said Kent Croft, president of Croft Leominster Investment Management, crediting the Countrywide news with lifting overall investor sentiment.
The Dow rose 133.23, or 1.00%, to 13,424.88.
Broader stock indicators also advanced, though more modestly. The Standard & Poor's 500 index rose 12.39, or 0.84%, to 1,483.95, and the technology-heavy Nasdaq composite index rose 8.99, or 0.35%, to 2,601.06.
Government bond prices fell sharply as stocks advanced and investors grew more confident they could move out of the safest bets. The yield on the 10-year Treasury note, which moves opposite its price, jumped to 4.48% from 4.41% late Wednesday.
"Some other financings have been done. There have been some corporate bond issues," Croft said, listing some of the reasons beyond the Countrywide news for a "slight easing" in concerns about credit.
While he warned further examples of credit distress are likely to pop up, he said much of the intransigence in the credit markets could ease as fear dissipates.
"A lot of this has to do with psychology," Croft said. "When you see some stabilization, it gives people more confidence to lend."
Wall Street shrugged off a record close in crude oil prices, which edged up 18 cents to $80.09 per barrel on the New York Mercantile Exchange. It was the first time oil has closed above $80.
Gold prices fell for a second day as the U.S. dollar came off an all-time low against the euro.
Economic news, while not commanding Wall Street's attention as did the credit markets and some corporate news, nevertheless appeared to help boost the mood on Wall Street. The Federal Reserve reported Thursday afternoon that the outstanding volume of commercial paper fell by $8.2 billion to $1.917 trillion, the fifth consecutive week it has fallen. The decline signals the corporate short-term commercial paper market could be stabilizing. Commercial paper comprises bonds issued by companies as a way for them to get cash quickly.
The Labor Department reported claims for unemployment benefits rose last week -- the sixth increase in seven weeks -- but less than analysts expected. Low unemployment, at 4.6%, has been one of the economy's strengths.
The rise in jobless claims follows last week's reading on August payrolls, which declined for the first time in four years and sent stocks plummeting amid worries that credit tightness and market turmoil had hit the labor market. But Thursday's report appeared to assuage some concerns.
In addition, the Treasury Department reported the federal deficit is running at a pace well below last year even as spending in August reached a record high.
On Wednesday, investors refrained from major moves ahead of next week's meeting of the Fed's policymakers. Wall Street has grown more confident the Fed will cut its benchmark federal funds rate.
With the backdrop of supportive economic readings, investors were free to follow some upbeat corporate news. Countrywide rose $2.31, or 14%, to $18.93 after the company added to its borrowing capacity. The move comes after Countrywide borrowed $11.5 billion and sold a $2 billion stake to Bank of America Corp. in recent weeks to keep its retail banking and mortgage businesses running.
The news helped lift the financial sector, which has struggled because of anxiety about the credit markets. Bear Stearns & Cos., Merrill Lynch and Goldman Sachs rose about 3%, and Morgan Stanley and Lehman Brothers rose 3% or more.
Wall Street also applauded apparent progress in Detroit. GM rose $3.04, or 10.1%, to $33.29, following a Wall Street Journal report that union officials might go along with a plan to form a health care trust fund that the union would control. The plan could allow U.S.-based automakers to shed billions in costs. Ford also rose on the news, closing up 42 cents, or 5.6%, at $7.92.
McDonald's, which like GM is a component of the Dow industrials, advanced $3.10, or 6.1%, to $54.30 after increasing its dividend 50% a day after reporting stronger-than-expected sales for August.
Advancing issues outnumbered decliners by about 3-to-2 on the New York Stock Exchange, where consolidated volume came to 2.87 billion shares compared with volume of 2.90 billion Wednesday.
The Russell 2000 index of smaller companies rose 2.45, or 0.31%, 780.35.
In markets abroad, Britain's FTSE 100 added 0.91%, Germany's DAX index rose 0.84% and France's CAC-40 rose 1.05%. In Asia, Japan's Nikkei stock average ended up 0.15%, while Hong Kong's Hang Seng Index rose 0.93%.