Takeover activity helps market bounce back
NEW YORK » Wall Street bounced back yesterday from its sharp decline a day earlier, boosted by takeover activity ahead of second-quarter earnings reports.
Investors shaken by profit warnings earlier in the week appeared to be cautiously optimistic as they awaited quarterly earnings reports.
Meanwhile, new merger and acquisition activity encouraged buying. Steelmaker Gerdau Ameristeel Corp. said late Tuesday it was buying Chaparral Steel Co. for $4.22 billion, while speculation mounted yesterday that Colgate-Palmolive Co. was interested in buying all or part of Unilever.
Giving the stock market an extra lift, Fed officials alleviated some jitters about problems involving subprime lending.
Philadelphia Federal Reserve President Charles Plosser said the financial system is well-equipped to handle home loan risks, and Fed Governor Kevin Warsh said that while subprime exposure troubles may not be over, they are not spilling into the broader economy.
Market watchers found it auspicious that Wall Street managed to recover some ground from its tumble yesterday, when the Dow Jones industrial average lost 148 points, but said investors may not be out of the woods yet.
"There's still, I sense, some caution, and I think the principal reason for the caution is that we have the heart of the earnings season ahead of us," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. "No one wants to make a major commitment to the market until we see the earnings reports. Earnings reports are a big hurdle that's on the horizon."
The Dow rose 76.17, or 0.56 percent, to 13,577.87.
Broader indexes also rebounded. The Standard & Poor's 500 index gained 8.64, or 0.57 percent, to 1,518.76, and the Nasdaq composite index advanced 12.63, or 0.48 percent, to 2,651.79.
The Russell 2000 index of smaller companies rose 2.49, or 0.30 percent, to 839.97.
Advancing issues narrowly outnumbered decliners on the New York Stock Exchange, where volume came to 1.44 billion shares.
Bonds slipped as investors re-entered the stock market. The yield on the benchmark 10-year Treasury note rose to 5.08 percent from 5.03 percent late Tuesday.
The dollar fell to a new record low against the euro and a 26-year low versus the British pound, but rose versus the yen.
Crude oil futures fell 25 cents to $72.56 a barrel on the New York Mercantile Exchange, after the Energy Department reported that U.S. gasoline inventories rose more than anticipated.
Gold prices dipped.
After the closing bell Tuesday, the stock market, which has been positioning itself for next week's onslaught of earnings reports, got some promising news.
Oil company Chevron Corp. said it expected its quarterly financial results would be boosted by higher commodity prices and stronger margins. Chevron rose $1.67 to $90.67.
Also late Tuesday, Gerdau said it was buying steel rival Chaparral. Chaparrel rose $7.98, or 10.5 percent, to $83.67, and Gerdau fell $1.21, or 7.7 percent, to $14.48.
Unilever rose $1.03, or 3.2 percent, to $32.94 on the Colgate takeover rumors, while Colgate rose $1.08 to $66.85.