By: By MADLEN READ AP Business Writer
NEW YORK (AP) — Wall Street bounced higher today as a strong outlook from IBM encouraged investors to buy back into stocks after their huge drop this week. The Dow Jones industrial average rose more than 170 points.
The University of Michigan’s index on consumer sentiment helped kindle the rally. The index, which most economists expected to show a decline for mid-January, rose instead. Though not a perfect predictor of consumer spending, the report gave investors some hope that Americans’ buying might not drop off too precipitously amid worries about a recession.
The market remains extremely skittish, however. The Dow, having suffered its worst three-day plunge in over five years, has fallen to levels not seen since last March.
Some companies are weathering the economic slowdown well — like International Business Machines Corp., which told Wall Street late Thursday to raise its 2008 profit estimates for the tech company, and General Electric Co., which posted a fourth-quarter profit rise today.
But others are struggling. Washington Mutual Inc. reported a steep loss late Thursday for the fourth quarter, just as Citigroup Inc. and Merrill Lynch did earlier in the week. With the banking industry trying to fix its shrinking portfolios and preparing for more distress in consumer debt, the economy may only have the government to fall back on.
Federal Reserve monetary policymakers meet Jan. 29-30, and the market widely expects them to lower the key interest rate, perhaps by a half-point. Federal Reserve Bank of Richmond President Jeffrey Lacker said today that more rate cuts are “quite possible.”
And at 11:50 a.m. EST, President Bush is expected to speak on the economy and discuss a plan to stimulate the economy through tax rebates and other strategies. Treasury Secretary Henry Paulson said today on NBC’s “Today” show he was confident a temporary stimulus package can be agreed upon quickly.
In morning trading, the Dow shot up 171.60, or 1.41 percent, to 12,330.81.
Broader stock indicators also rose. The Standard & Poor’s 500 index gained 16.54, or 1.24 percent, to 1,349.79, and the Nasdaq composite index advanced 36.52, or 1.56 percent, to 2,383.42.
Government bonds fell as stocks rallied. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.67 percent from 3.63 percent late Thursday.
In corporate news, chip maker Advanced Micro Devices Inc. late Thursday said its fourth-quarter net loss widened, but the loss was smaller than Wall Street predicted. AMD surged 76 cents, or 12 percent, to $7.10.
IBM rose $3.57, or 3.5 percent, to $104.67 on its strong outlook.
Washington Mutual rose 11 cents to $12.57. Many investors, in anticipation of an even bigger fourth-quarter loss, had driven the savings and loan’s stock sharply lower Thursday.
On Thursday, a dismal reading on the Philadelphia Fed’s manufacturing index and ratings agency downgrades of bond insurers sent the Dow tumbling 306 points. Today, a Bank of America Corp. analyst cut its ratings on three bond insurers — MBIA Inc., Ambac Financial Group and Security Capital Assurance Ltd. — to “Neutral” from “Buy.”
MBIA fell 57 cents, or 6.2 percent, to $8.65, after a sharp drop Thursday.
Ambac rebounded from Thursday’s drop, though, rising 77 cents, or 12.3 percent, to $7.01. The company said today it will ditch its previous plan to raise $1 billion in capital, a decision many investors considered an ill-advised move to maintain its ratings.
Security Capital Assurance rose 8 cents, or 4.4 percent, to $1.90.
The dollar was mixed against most major currencies, while gold rose.
Crude oil futures rose 89 cents to $91.02 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies rose 9.26, or 1.36 percent, to 689.83.
In overseas trade, Japan’s Nikkei stock index rose 0.56 percent and Hong Kong’s Hang Seng index advanced 0.35 percent. In Europe, London’s FTSE 100 rose 1.31 percent, Frankfurt’s DAX rose 0.63 percent and Paris’ CAC gained 0.55 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Published in The Messenger 1.18.08