Wall Street advances on hope for rate cut
NEW YORK » Wall Street advanced yesterday as expectations for an interest rate cut from the Federal Reserve and an uptick in pending home sales helped offset concerns about another round of subprime mortgage-related losses. The Dow Jones industrials gained more than 100 points.
Investors remained upbeat ahead of the Fed's rate-setting meeting tomorrow. Policymakers are broadly expected to lower rates, though econo-mists are still split over whether there will be a quarter-point cut or half-point cut.
The National Association of Realtors gave Wall Street reason to be optimistic about the economy yesterday when it said its forward-looking index of U.S. home sales rose in October for the second month in a row. Though investors are still expecting the housing market to remain weak well into 2008, the association is forecasting sales and prices to start recovering modestly next year.
The downturn in housing has led to huge losses among banks that invested in securities backed by mortgages, and yesterday UBS was the latest to reveal large writedowns.
The Swiss bank said it will write down some $10 billion of subprime mortgage holdings, which could lead to full-year losses. However, its U.S. shares rose $1.10, or 2.2 percent, to $51.58 after the bank unveiled plans for an $11.5 billion cash infusion from the government of Singapore and an unidentified Middle Eastern investor.
"The financial stocks are leading the way higher because of the UBS news," said Donald Selkin, director of equity research at Joseph Stevens. "There is optimism today that we have seen the worst in the financial sector. There is a feeling that these stocks have already discounted the worst case scenario."
After the closing bell, Washington Mutual Inc. said it will record a $1.6 billion writedown on its home loans business as it announced plans to discontinue all subprime mortgage lending and eliminate 2,600 positions in the home loans segment.
The nation's largest savings and loan now expects a loss in the fourth quarter. WaMu's shares shed 29 cents to $19.59 in aftermarket activity, after closing up 85 cents, or 4.5 percent higher, at $19.88.
The Dow rose 101.45, or 0.74 percent, to 13,727.03. The Standard & Poor's 500 index rose 11.30, or 0.75 percent, to 1,515.96. The Nasdaq composite index added 12.79, or 0.47 percent, to 2,718.95.
The Russell 2000 index of smaller companies rose 5.68, or 0.72 percent, to 791.22.
Advancing issues outnumbered decliners by slightly less than 2 to 1 on the New York Stock Exchange. Volume came to $1.17 billion shares, compared with 1.20 billion shares on Friday.
Bond prices fell. The 10-year Treasury note's yield rose to 4.15 percent from 4.12 percent late Friday.
The dollar was mixed against other major currencies, and gold prices rose.
Oil prices were volatile amid end-of-year position taking and anticipation of tomorrow's Fed meeting. Light, sweet crude reversed course to close down 42 cents to $87.86 a barrel on the New York Mercantile Exchange.
McDonald's Corp., the world's largest fast-food company, and one of the 30 Dow components, rose on strong sales to $1.74 cents, or 2.9 percent, to $61.90.