Popular Lehman stock deal sparks Wall Street rally
US stocks shot up the most in two weeks on Tuesday after strong demand for a Lehman Brothers share offering quelled fears it was headed toward a fate similar to Bear Stearns and raised optimism that the worst of the credit crisis may be over.
A $19 billion write-down by Swiss bank UBS AG reinforced the view that the banks were aggressively scrubbing their books clean of soured investments tied to the slumping US housing market. Bank stocks charged higher, with big gains by JPMorgan Chase & Co, Bank of America and Citigroup helping to drive both the Dow average and the S&P 500 up more than 3 per cent.
Technology stocks also had a strong day. The Nasdaq leaped more than 3 per cent, helped by Microsoft, whose shares rose 4 per cent after the company said it would not raise its takeover offer for Yahoo Inc and was confident in its bid.
“We’re getting to the point where poeple are starting to believe the magnitude of the write-offs is peaking,” said Owen Fitzpatrick, head of the US Equity Group at Deutsche Bank Private Wealth Management, in New York. “And, it’s Lehman being able to come to market and offer securities. People are interested in placing capital within financials.”
For a second day, traders took solace from economic data that was not as dire as forecast. The Institute for Supply Management said its national manufacturing index for March contracted again, but not by as much as economists had predicted.
The Dow Jones industrial average .DJI gained 391.47 points, or 3.19 percent, to end at 12,654.36. The Standard & Poor’s 500 Index .SPX rose 47.48 points, or 3.59 per cent, to 1,370.18. The Nasdaq Composite Index .IXIC jumped 83.65 points, or 3.67 per cent, to 2,362.75.
Stocks posted their best gains since March 18, the day that the Federal Reserve’s policy makers last cut interest rates. Tuesday’s rally also marked a strong start for the first day of the second quarter.
Lehman Brothers Holdings Inc’s stock jumped 17.8 percent to $44.34 after the investment bank said it raised $4 billion of capital in an offering of convertible preferred shares.
That eased investors’ anxiety after Bear Stearns nearly collapsed last month amid a liquidity crisis. The US Federal Reserve encouraged JPMorgan Chase & Co to take over Bear Stearns Cos Inc when it experienced a run on the Wall Street investment bank last month.
Bear Stearns’ stock ended up 3.4 per cent at $10.85 on the NYSE.
JPMorgan’s stock, which contributed the most to the advance of both the Dow and the S&P 500, climbed 9.4 per cent to close at $47.00 on the New York Stock Exchange.
The S&P financial index surged 7.5 per cent, while shares of Bank of America shot up 7.8 per cent to $40.86 and the stock of Citigroup leaped 11.3 per cent to $23.84.
Offering more relief to investors was UBS, which said it wrote down an additional $19 billion on US real estate and related assets and unveiled a massive increase in capital. Its US-listed shares surged 14.6 per cent to $33.01.
On the Nasdaq, Microsoft rose to $29.49. People familiar with Microsoft’s plans said the company sees no reason to increase its bid for Yahoo Inc two months after it made a $44.6 billion offer to buy the Internet company. Yahoo shares fell 1.5 per cent to $28.50.
Early in the session, the Institute for Supply Management said its index of national factory activity edged up in March, but remained below the level that separates growth from contraction. Still, it beat expectations, which caused stock investors to cheer.
Trading was active on the New York Stock Exchange, with about 1.70 billion shares changing hands, below last year’s estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.16 billion shares traded, just below last year’s daily average of 2.17 billion.
Advancing stocks outnumbered declining ones on the NYSE by more than 5 to 1 and by 3 to 1 on Nasdaq
