Stocks capped a volatile week with sharp gains Friday as oil prices tumbled and after Federal Reserve Chairman Ben Bernanke said inflation pressures are likely to moderate. The Dow Jones industrial average rose nearly 200 points.
Speculation that Lehman Brothers Holdings leh could be sold helped buoy the financial sector and the overall market. Analysts warned this week that the investment bank could book large write-downs for bad debt. But reports Friday that Korea Development Bank is considering buying the company sent investors rushing for the stock. Lehman rose 69 cents, or 5%, to $14.41 but finished well off its highs of the session.
Investors also appeared cheered by an inflation forecast from Bernanke who said at the Kansas City Fed's annual economic symposium that inflation pressures should moderate this year amid tepid economic growth. But he also added that the inflation forecast remains "highly uncertain."
John Massey, senior portfolio manager at AIG SunAmerica Asset Management, said investors are encouraged by Bernanke's comments on interest rates and by the possibility of a buyer for Lehman.
"We're seeing the potential for maybe another white knight," he said, referring to prospects of a deal to acquire all or part of the investment bank.
The health of the financial sector and rising inflation are two of the market's greatest concerns. Although Bernanke refrained from making predictions about inflation, the market was mollified when light, sweet crude plunged $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.
The Dow rose 197.85, or 1.73%, to 11,628.06, near its highs of the session.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 14.48, or 1.13%, to 1,292.20, and the Nasdaq composite index rose 34.33, or 1.44%, to 2,414.71.
The run-up Friday left stocks with mostly modest losses for the week that again saw a series of triple-digit moves in the Dow. The Dow was down 0.27%, the S&P 500 was off 0.46% and the technology-heavy Nasdaq was down 1.54%.
Bond prices pulled back as investors rushed from the safety of government debt to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.87% from 3.83% late Wednesday.
The dollar rose against other major currencies, while gold prices fell.
Massey cautioned against making too much of the market's moves given the light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost more than 300 points over Monday and Tuesday before ending moderately higher Wednesday and finishing mixed Thursday.
"The light volumes are really sort of the reasons behind why you've got some outsize moves. I think the issues over all for the economy and the market are fairly well understood," he said. "The market is of this mind-set that we're going to continue to be flattish to down."
He doesn't expect the stock market to more accurately reflect investor sentiment until after Labor Day, when trading volumes should pick up. Until then, he'll be looking next week at readings on consumer confidence and unemployment to determine where the economy might be headed.