Stocks rise in volatile trading as ECB lends $500 billion
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NEW YORK -- Stocks rose today when investors found solace in the European Central Bank's $500 billion loan issuance and profit gains at Goldman Sachs and Best Buy, but the possibility of recession in 2008 made for a back-and-forth session.
The ECB's massive 16-day tender supported the idea that the world's central banks are working to revive demand in struggling areas of the credit market. The Bank of England also said it would offer additional reserves to lenders today, after the U.S. Federal Reserve yesterday auctioned off $20 billion in 28-day credit.
Few are calling the end of the credit crunch just yet, though, and the market's seesaw movements today reflected its uncertainty. Alongside U.S. government data showing that new home construction dropped in November to its lowest rate in more than 16 years, the central banks' actions had a hard time galvanizing a market that remains anxious that the economy has further to fall.
"It's very disconcerting that we're getting central bank interventions for a problem that many were hoping would be a self-contained one," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.
Meanwhile, cautious forward-looking comments by Goldman Sachs Group Inc. and Best Buy Co. dampened the market's enthusiasm over the companies' better-than-expected quarterly earnings.
"The credit issues, the liquidity issues, are still there," said Ryan Detrick, strategist at Schaeffer's Investment Research. "There's a dark cloud over the market."
The Dow Jones industrial average rose 65.27, or 0.50 percent, to 13,323.47, after gaining as many as 112 points, tumbling by 75 points, and then rebounding.
The blue chip index had lost 4 percent over the past week since the Fed's decision last today to lower interest rates by a quarter point, which was less than many investors hoped.
Broader stock indicators also bounced back from a midday slump. The Standard & Poor's 500 index rose 9.07, or 0.63 percent, to 1,454.97, and the Nasdaq composite index rose 21.57, or 0.84 percent, to 2,596.03.
Each of the three major stock indexes yesterday lost at least 1 percent due to concerns that prices could keep rising despite a weakening economy -- a phenomenon called stagflation. Stocks have also been volatile due to the upcoming "quadruple witching" on Friday, when contracts expire for stock index futures, stock index options, stock options and single stock futures.
The Fed revealed a plan today to give people taking out mortgages new protections against questionable lending practices -- particularly to subprime borrowers, whose inability to keep up with their loan payments has led to this year's spike in foreclosures and credit crunch.
The dollar rose against other major currencies and gold prices also advanced.
Light, sweet crude fell 14 cents to $90.49 a barrel on the New York Mercantile Exchange.
First Published December 18, 2007 5:22 pm