Freeze on some loans gives market a boost
NEW YORK » Wall Street rallied once again yesterday as investors bet that companies hurt by the housing crisis will benefit from a government plan to help financially stretched homeowners and from another interest rate cut.
The Dow Jones industrial average surged more than 170 points after a nearly 200-point rise Wednesday.
Wall Street has been concerned about the housing slump's impact on consumers, and started out a bit shaky yesterday when Target Corp. released lackluster sales and a downbeat December outlook. However, stocks eventually pushed higher; a weak consumer, though bad for corporate profits, at least supports the argument for the Fed Reserve to lower interest rates when it meets Tuesday.
Stocks got an additional boost when President Bush announced a plan allowing some homeowners facing foreclosure to not only freeze their interest rates for up to five years, but also refinance their mortgages.
The plan was created by the U.S. Treasury Department, mortgage lenders and banks, and could help about 1.2 million homeowners, Bush said.
"That's providing a glimmer of hope," said Jim Herrick, director of equity trading at Baird & Co. "But there's some skepticism. Is this really going to be the panacea to the subprime market? That's the $64,000 question."
Even Treasury Secretary Henry Paulson said the plan was not a "silver bullet."
Foreclosures hit a record high in the third quarter, according to the Mortgage Bankers Association.
The Dow rose 174.93, or 1.30 percent, to 13,619.89.
Broader stock indicators also extended their gains. The Standard & Poor's 500 index rose 22.33, or 1.50 percent, to 1,507.34, and the Nasdaq composite index rose 42.67, or 1.60 percent, to 2,709.30.
The Russell 2000 index climbed 21.31, or 2.78 percent, to 786.95.
Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to 1.37 billion shares.
Crude oil surged $2.74 to settle at $90.23 a barrel on the New York Mercantile Exchange. The dollar was mixed against other major currencies, while gold prices slipped.
Bond prices fell as investors returned to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite to its price, rose to 4.02 percent from 3.95 percent late Wednesday.
Countrywide Financial Corp., the nation's largest mortgage lender, rose $1.68, or 16 percent, to $12.10, on the government mortgage rate plan.
"Investors are having a collective sigh of relief that this is a positive signal the housing crisis and credit crunch will not cause the end of this bull market," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors.
But the stock market has been volatile since the summer, jumping on signals that the worst of the credit crisis is over and then plunging on hints that it could persist well into next year. With the Fed's meeting Tuesday and investment bank fourth-quarter earnings around the corner, there remains an undercurrent of nervousness on Wall Street.