Citigroup infusion gives market a lift
NEW YORK » Wall Street rebounded yesterday after the Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup Inc. -- a vote of confidence for the nation's largest bank, which has suffered severe losses amid the ongoing crisis in the mortgage market.
The Dow Jones industrials rose more than 200 points in yet another volatile session as investors were hopeful the financial sector can remain healthy despite the ongoing credit crisis.
The banking industry has been battered in recent months as defaults on home loans have risen and rendered some mortgage-backed securities essentially worthless.
Major financial institutions, including Citi and its competitors, have had to book some $80 billion of writedowns on those holdings -- a trend that has left the markets nervous about the full extent of the damage from soured loans. Citi's ability to secure a capital injection raised hope others might be able to do the same.
"The Citi deal is certainly a relief after a series of negative news on Monday with respect to the financials," said Todd Salamone, director of trading at Schaeffer's Investment Research. Funds like Abu Dhabi's "that have plenty of cash may be viewed as a potential rescuer given the balance sheet troubles the banks are having. A weak dollar makes it that much more possible."
Still, the market showed some vulnerability to anyone raising the specter of a sagging economy, and that caused another day of big swings for major indexes. Concerns about further writedowns caused the Dow to fall 240 points Monday, bringing the blue chip index, along with the Standard & Poor's 500 index, down 10 percent from recent highs, a decline that signifies a correction.
The Dow rose 215.00, or 1.69 percent, to 12,958.44 after being up nearly 250 points earlier in the session.
Broader stock indexes also moved higher, with the S&P 500 index up 21.01, or 1.49 percent, at 1,428.23, and the Nasdaq composite index up 39.81, or 1.57 percent, at 2,580.80. The Russell 2000 index of smaller companies rose 8.20, or 1.12 percent, to 743.27.
Advancing issues outpaced decliners by nearly 3 to 2 on the New York Stock Exchange, where volume came to 1.36 billion shares.
The market has been erratic as investors have tried to overcome concerns about the banking sector, the credit markets, consumer spending, energy prices and the overall economy.
A pullback in oil prices aided the market's gains. A barrel of light, sweet crude dropped $3.28 to $94.42 on the New York Mercantile Exchange on expectations that the Organization for Petroleum Exporting Countries will raise production at its Dec. 5 meeting.
Government bond prices fell. The yield on the 10-year Treasury note jumped to 3.94 percent from 3.85 percent late Monday.
Gold prices fell as the dollar rebounded.
Abu Dhabi's purchase of a stake in Citigroup will make the city-state one of the bank's largest shareholders. Sheik Ahmed Bin Zayed Al Nahayan called Citi "a premier brand and with tremendous opportunities for growth." Citigroup shares rose 52 cents to $30.32.