- The Washington Times - Saturday, February 23, 2008

NEW YORK (AP) — Wall Street staged a dramatic turnaround yesterday, shooting higher in the last half-hour of trading after word that a bailout plan for troubled bond insurer Ambac Financial could be announced next week. The major indexes were narrowly mixed following a week of choppy trading.

CNBC reported shortly before the closing bell that a plan to help shore up the finances of Ambac Financial Group Inc. could be announced Monday or Tuesday. Ambac shares jumped on the report and finished up $1.48, or 16 percent, at $10.71.

The market’s turnaround came after nearly two full days of selling. The Dow Jones Industrial Average had been down nearly 130 points, but by the close, showed a 225-point reversal from its lows of the session.

“There’s probably some validity to the rumors,” said Jim Herrick, manager of equity trading at Baird & Co., referring to traders’ speculation about Ambac. “With the overall financial crunch we’ve experienced, this brings new confidence in the sector.”

The Dow rose 96.72, or 0.79 percent, to 12,381.02.

Broader stock indicators also moved higher. The Standard & Poor’s 500 Index rose 10.58, or 0.79 percent, to 1,353.11, and the Nasdaq Composite Index rose 3.57, or 0.16 percent, to 2,303.35.

For the week, the Dow edged up 0.27 percent, while the S&P; 500 rose 0.23 percent and the Nasdaq lost 0.79 percent.

The market’s early decline followed a sell-off Thursday that left the Dow down more than 140 points, or 1.15 percent. Investors worried about a weaker-than-expected reading on regional manufacturing from the Federal Reserve Bank of Philadelphia as well as another drop in the Conference Board’s monthly index of leading economic indicators.

Bond prices reversed alongside stocks. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.78 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude for April delivery rose 58 cents to settle at $98.81 a barrel on the New York Mercantile Exchange amid concerns about possible supply disruptions and cold weather.

The day’s late reversal appeared to ease some of Wall Street’s concerns about the prospects for the financial sector and the overall economy after several weak economic readings. The reports arriving in recent weeks have raised questions about whether the Federal Reserve will be able to fend off a recession. There have also been more urgent fears the U.S. may be entering a period of stagflation — when stalling growth accompanies rising prices — for the first time since the 1970s.

As occurred Wednesday and again late yesterday, investors at times set aside those concerns and snapped up stocks either to cover bets that stocks would fall or amid genuine, if tentative, optimism that officials from the Fed to other parts of the government could help right the economy. Wednesday’s gains followed a quiet start to the week Tuesday — markets were closed for Presidents Day Monday — and came after minutes from the Fed’s last meeting indicated the central bank plans to lower interest rates as needed and look past some gathering concerns about inflation.

Wall Street’s bursts of optimism haven’t proven long-lasting. Investors remain concerned that the economy could be so weak that rate cuts, which take months to work their way through the economy, won’t stave off a further slowdown. A government-backed plan to aid bond insurers could help boost confidence in the bond market, where a lack of confidence has crimped the flow of money.

The Fed’s next rate-setting meeting is scheduled for March 18. Policy-makers lowered key interest rates a half-point to 3 percent on Jan. 30, following an emergency three-quarter point cut the previous week.

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