Stocks rally at day's end on report of bond bailout

NEW YORK -- Wall Street staged a sharp turnaround Friday, shooting higher in the last half-hour of trading after word that a bailout plan for troubled bond insurer Ambac Financial could be announced next week.

The market's turnaround came after nearly two days selling. The Dow Jones industrial average had been down more than 100 points, but by the close, showed a 225-point reversal from its lows of the session.

"There's probably some validity to the rumors," said Jim Herrick, manager of equity trading at Baird & Co., referring to traders' speculation about Ambac. "With the overall financial crunch we've experienced, this brings new confidence in the sector."

The Dow Jones industrial average rose 96.72, or 0.8%, to 12,381.02.

Broader stock indicators also moved higher. The Standard & Poor's 500 index rose 10.58, or 0.8%, to 1353.11, and the Nasdaq composite index rose 3.57, or 0.2%, to 2303.35.

The market's early decline followed a sell-off Thursday that left the Dow down more than 140 points, or 1.2%. Investors worried about a weaker-than-expected reading on regional manufacturing from the Federal Reserve Bank of Philadelphia as well as another drop in the Conference Board's monthly index of leading economic indicators.

"I think what really still seems to be dragging the market down are some of the those manufacturing numbers," said Ryan Detrick, strategist at Schaeffer's Investment Research in Cincinnati, referring to the Philadelphia Fed report as well as regional manufacturing findings from the New York Fed last week. "It just shows that the fears that the U.S. economy is in recession are continuing to dominate."

Bond prices reversed alongside stocks. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.81% from 3.78% late Thursday. The dollar was mixed against other major currencies, while gold prices rose.