Stocks Climb as Financial Firms Turn In a Reassuring Quarter
U.S. stocks posted their biggest gain in seven weeks after the Federal Reserve injected more cash into the banking system and Wall Street's largest securities firms posted earnings that topped estimates.
Goldman Sachs Group, Morgan Stanley and Lehman Brothers Holdings led the biggest rally in financial shares since September 2001 after their first-quarter results eased concern that banks' cash shortage will deepen. Fannie Mae and Freddie Mac jumped more than 50 percent after the biggest sources of mortgage financing agreed to expand loan purchases. Home builders surged.
"It could be a turning point," said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston.
The Standard & Poor's 500-stock index advanced 3.2 percent, to 1329.51 this week, trimming its 2008 loss to 9.5 percent. The Dow Jones industrial average rose 3.4 percent, to 12,361.32. The Nasdaq composite index rose 2.1 percent for the week, to 2258.11.
Stocks fell to begin the week as client withdrawals at Bear Stearns forced the fifth-largest securities firm to sell itself to J.P. Morgan Chase at a 93 percent discount. The Fed fueled the rebound with a 0.75 percentage point cut in its interest-rate benchmark and a new lending program for brokers.
Treasury bills maturing within six months climbed, sending yields to the lowest level since the 1950s, as the loss of investor confidence in short-term credit markets deepened. Three-month bill rates touched 0.39 percent.
Two-year note yields sank to 1.24 percent on Monday, the lowest since 2003, before climbing to 1.6 percent as traders pared bets on additional Fed rate cuts. Ten-year note yields declined to 3.33 percent as the dollar's gain eased concern inflation will accelerate.
The central bank reduced its main lending rate to 2.25 percent. The reduction was 0.25 percentage point smaller than futures traders anticipated, spurring a rally in the dollar and the biggest weekly drop in commodities in five decades.
"People who thought they had to hide from the U.S. dollar went into gold and commodities to protect themselves," said Komal Sri-Kumar, chief global strategist at TCW Group.
The Treasury will auction $24 billion of three-month bills and $22 billion of six-month bills tomorrow. It will sell one-month bills on Tuesday.
-- Bloomberg News