Stocks rally on plan for mortgage giants
NEW YORK » Stocks rallied yesterday as investors placed bets that a recovery in the financial and housing sectors is more likely to occur following the U.S. government's move to bail out mortgage giants Fannie Mae
and Freddie Mac
. The Dow Jones industrials gained nearly 300 points.
The announcement Sunday that the U.S. Treasury Department was seizing control of the companies, which own or back about half the nation's mortgage debt, brushed aside investors' long-simmering worries that the pair would be felled by a spike in bad mortgage debt.
The Dow Jones industrial average rose 289.78, or 2.58 percent, to 11,510.74 after being up nearly 350 points.
Broader stock indicators were also higher. The Standard & Poor's 500 index advanced 25.48, or 2.05 percent, to 1,267.79, and the Nasdaq composite index added 13.88, or 0.62 percent, to 2,269.76.
Bond prices pulled back yesterday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.71 percent from 3.69 percent late Friday. The dollar was higher against other major currencies, while gold prices rose.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.5 billion shares.
The Russell 2000 index of smaller companies rose 14.01, or 1.95 percent, to 732.86.
Common shares of Fannie Mae and Freddie Mac will be made virtually worthless by the plan, which will dilute the stock. Fannie Mae shares plunged $6.34, or 90.1 percent, to 70 cents, while Freddie Mac fell $4.21, or 83 percent, to 89 cents.
Other financial names rallied, particularly those seen as having big exposure to mortgages. Bank of America Corp. jumped $2.50, or 7.7 percent, to $34.73, while Wachovia Corp. rose $2.24, or 13.4 percent, to $18.99. Citigroup Inc. rose $1.25, or 6.6 percent, to $20.32.
Among financials, Lehman Brothers Holdings Inc. was one of the few decliners, falling $2.05, or 12.7 percent, to $14.15 as investors worried that the No. 4 U.S. investment bank was having trouble finding an investor to help shore up its balance sheet.
Home builders also gained ground alongside most financials. Lennar Corp. rose $1.39, or 10.3 percent, to $14.95, and KB Home advanced $2.93, or 14.2 percent, to $23.5.
In the tech space, SanDisk Corp. fell $1.04, or 5.9 percent, to $16.60, while Apple Inc. fell $2.26 to $157.92. Investors are worried the slowing economies overseas will slow demand.
The U.S. government's plan also touched off a global stock rally yesterday. Japan's Nikkei stock average jumped 3.4 percent and Hong Kong's Hang Seng index surged 4.3 percent. Britain's FTSE 100 jumped 3.92 percent, Germany's DAX index rose 2.22 percent, and France's CAC-40 surged 3.42 percent.
Light, sweet crude for October delivery rose 11 cents to settle at $106.34 a barrel on the New York Mercantile Exchange.
In corporate news, Washington Mutual Inc. fell 15 cents, or 3.5 percent, to $4.12 after removing Kerry Killinger from the chief executive spot.