GM, Countrywide news boosts markets
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 percent following 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 Charles Norton, principal and portfolio manager at GNICapital, crediting the Countrywide news with lifting overall investor sentiment.
The Dow rose 133.23, or 1.00 percent, to 13,424.88.
Broader stock indicators also advanced, though more modestly. The Standard & Poor’s 500 index rose 12.39, or 0.84 percent, to 1,483.95, and the technology-heavy Nasdaq composite index rose 8.99, or 0.35 percent, 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 percent from 4.41 percent late Wednesday.
“Some other financings have been done. There have been some corporate bond issues,” Norton 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,” Norton 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 8 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 company news, nevertheless appeared to help lift investor sentiment. The Labor Department reported claims for unemployment benefits rose by 4,000 last week to 319,000 — the sixth increase in seven weeks — but less than the 325,000 claims analysts expected.
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.
Advancing issues outnumbered decliners by about 2-to-1 on the New York Stock Exchange, where volume came to 1.27 billion shares compared with volume of 1.29 billion Wednesday.
The Russell 2000 index of smaller companies rose 2.45, or 0.31 percent, 780.35.
In markets abroad, European equity markets rose. Britain’s FTSE 100 added 0.91 percent, Germany’s DAX index rose 0.84 percent and France’s CAC-40 rose 1.05 percent. In Asia, Japan’s Nikkei stock average ended up 0.15 percent, while Hong Kong’s Hang Seng Index rose 0.93 percent.