Wall Street Begins Quarter With a Bang

U.S. stocks rose sharply yesterday after two large banks said they were raising billions of dollars in new cash, reflecting renewed confidence in the health of financial firms.

The steps by Lehman Brothers and the Swiss bank UBS to raise up to $19 billion from shareholders showed that fallout from the subprime mortgage debacle could be starting to wane, analysts said.

The Dow Jones industrial average surged 3.2 percent in the first trading day of the second quarter, as investors left such safe harbors as Treasury securities.

"Almost every market downturn ends with some major financial crisis, and we certainly had one," said Al Goldman, chief market strategist for Wachovia Securities, referring to the collapse of investment bank Bear Stearns nearly three weeks ago. "It is called a change in mood: We are going from a glass-is-half-empty to a glass-is-half-full. "

The Dow closed up 391.47 points, at 12,654.36. Broader stock indicators also rose sharply. The Standard & Poor's 500-stock index gained 47.48, or 3.6 percent, to close at 1370.18. The tech-heavy Nasdaq composite index gained 83.65, or 3.7 percent, to 2362.75.

The gains were the biggest since March 18, when the Dow rose 420 points after the Federal Reserve cut a key interest rate by three-quarters of a percentage point.

Lehman shares rose 17.8 percent, or $6.70, to close at $44.34 after the company said it had raised $4 billion from a stock sale, which helped quell investors' fears that the firm might be short on cash.

"The significant oversubscription for this deal demonstrates the confidence that investors have in Lehman Brothers," Erin Callan, chief financial officer of Lehman, said in a statement.

UBS shares gained 14.6 percent, or $4.21, to close at $33.01 on the New York Stock Exchange after the Swiss bank's announcement that it would offer up to $15 billion from shareholders to rebuild its cash supply.

UBS also announced it would take an approximately $12 billion loss in the first quarter after writing down $19 billion from its investments in the U.S. real estate market. In disclosing that it would write down the assets on its books, the bank said that it would create a separate unit to manage its U.S. real estate portfolio and that UBS Chairman Marcel Ospel would step down. General counsel Peter Kurer was nominated to take his place.

Buoyed by favorable news in the financial markets, shares of Washington area mortgage giants Freddie Mac and Fannie Mae were also up sharply, gaining 15.4 and 19.7 percent respectively.

Some analysts, however, warned that losses in the financial sector may not be over. S&P downgraded UBS's credit rating to AA- from AA, citing the "potential for a more precipitous decline in profitability from capital market activities during the next few quarters."

The rally was also boosted by a report showing that the U.S. manufacturing sector contracted but not as fast as it did in February. The Institute for Supply Management said its manufacturing index registered 48.6 last month, compared with 48.3 in February. Readings below 50 indicate contraction, while those above 50 reflect growth.

Movers

J.P. Morgan Chase rose $4.05, to $47.

Bear Stearns was up 36 cents, to $10.85.

Citigroup shot up $2.42, to $23.84.

Deutsche Bank rose $4.70, to $117.75, after warning it would take a $4 billion write-down in the first quarter.

Dell gained 41 cents, to $20.33, after the computer maker said as much as $3 billion will be saved over the next three years.