Stocks bounce higher after losing ground last week

Mon, 05/18/2009 - 8:05am
Tim Paradis, AP Business Writer

NEW YORK (AP) – Investors regained some optimism about the U.S. economy Monday after a better-than-expected earnings report by home improvement chain Lowe's.

The Dow Jones industrial average rose 100 points in the early going. Some buying was to be expected after a pullback last week interrupted a rally that has lifted the Standard & Poor's 500 index more than 30 percent since early March.

Investors are again examining the housing market for clues about the economy. Lowe's, the second-largest U.S. home improvement chain, posted a 22 percent drop in its first-quarter earnings but results topped Wall Street's forecasts. The company also raised its full-year profit projection.

The National Association of Home Builders is set to release its index of builders' confidence for May later in the day. Steep losses on home values are one of the economy's biggest trouble spots because it is hurting banks and consumers.

Financial stocks, which fell last week, turned higher after a handful of upbeat reports from analysts. BMO Capital Markets upgraded its view of the banking industry, saying it expects industry profits will start to rebound in coming quarters. Rochdale Securities analyst Richard Bove noted the potential for "explosive earnings growth and unusually strong stock price performance" for banks as the economy recovers.

Banking company State Street Corp. said it plans to raise funds through stock and debt offerings as part of an effort to repay the $2 billion the government loaned as part of its financial rescue last fall.

Analysts say the ability of banks to turn to the market to raise cash is a welcome sign of stability, even if the introduction of added shares makes those already in circulation worth less.

"If you look back just 60 days ago, the talk was of nationalization of some of our biggest banks. Some of the prognosticators were calling for 5,000 Dow," said Jeff Layman, chief investment officer at BKD Wealth Advisors. The Dow closed Friday at 8,269.

He expects trading will remain volatile as investors look for signs that the recession is easing.

"It's going to be fits and starts for a while," Layman said.

In midmorning trading, the Dow rose 100.99, or 1.2 percent, to 8,369.63. The broader S&P 500 index rose 9.90, or 1.1 percent, to 892.78, and the Nasdaq composite index rose 14.28, or 0.9 percent, to 1,694.42.

Last week, the Dow slid 3.6 percent, the S&P 500 index lost 5 percent and the Nasdaq fell 3.4 percent as investors worried that the economy's recovery might be further off than hoped after stocks rallied since hitting 12-year lows more than two months ago.

Bond prices slipped Monday, pushing the yield on the benchmark 10-year Treasury note up to 3.15 percent from 3.14 percent late Friday.

Indian stocks jumped after investors saw election results in the country as paving the way for economic reforms. India's index surged 17 percent. Infosys Technologies Ltd. rose $3.55, or 11 percent, to $35.57, while Sify Technologies Ltd. rose 51 cents, or 40 percent, to $1.80.

State Street rose $1.26, or 3.3 percent, to $39.77. The company, which specializes in serving institutional investors and wealthy customers, said it expects to raise $1.45 billion from the stock offer alone.

Bank of America Corp. rose $1, or 9.4 percent, to $11.67 after Goldman Sachs raised its rating on the bank.

Lowe's rose $1.38, or 7.5 percent, to $19.83 after posting its results.

Beyond the housing sales report, Wall Street will be looking this week to data Tuesday on housing construction and regional manufacturing on Thursday.

Investors are looking for signs that the economy is starting to recover, not simply slow its descent. At the start of the market's 30 percent rally since the lows of March 9 investors were willing to scoop up stocks when the economy signaled it might be stabilizing. But now, after the rally, analysts say more will be needed to carry the market higher.

In other trading, the Russell 2000 index of smaller companies rose 6.66, or 1.4 percent, to 482.50.

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•  Stocks bounce higher after losing ground last week
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