Stocks higher despite weak dollar, records in gold, oil
— -- Stocks rose Thursday in volatile trading even after a sagging dollar pushed gold futures prices to a record $1,001 an ounce and crude oil to $111 a barrel.
The advance came after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that have devastated the stock and credit markets.
The S&P projection gave investors some hope that the seemingly unrelenting losses from the mortgage and credit crisis might indeed be bottoming out. Standard & Poor's Ratings Services said it estimates write-downs of subprime asset-backed securities could reach $285 billion globally, up from its previous projection of $265 billion, but added that "the end of write-downs is now in sight for large financial institutions."
"The S&P comment was a positive for the market because investors were relieved to think that the subprime problem may be behind us," said Al Goldman, chief market strategist at A.G. Edwards.
Wall Street clearly remains anxious, however. On Tuesday, the stock market launched its largest rally in more than five years after the Federal Reserve said it would loan out $200 billion in Treasurys to help alleviate investment banks' financial bind. But since then, stocks have been extremely volatile.
Kim Caughey, equity research analyst at Fort Pitt Capital Group, said that while she is a market bull, it's possible investors extrapolated a bit too much good news from the S&P report. "I would rather see fewer foreclosures and housing prices bottoming out to decide that the credit crisis is drawing to a close," she said.
The S&P's note arrived on the heels of a spate of troubling news. A Carlyle Group fund warned late Wednesday it expects creditors will seize all the fund's remaining assets after unsuccessful negotiations to prevent its liquidation. Meanwhile, the government reported Thursday an unexpected dip in retail sales, and a research firm said nearly 60% more U.S. homes faced foreclosure in February than in the same month last year.
The Dow Jones industrial average finished up 35.50, or 0.3%, at 12,145.74, after being down more than 220 points early in the session and then popping up more than 100.
Broader market indexes also recovered from steep early losses. The S&P 500 index rose 6.71, or 0.5%, to 1315.48, while the Nasdaq composite index rose 19.74, or 0.9%, at 2263.61.
Bond prices fell as stocks rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.54% from 3.44% late Wednesday.
As investors contend with tight credit markets, they also face weakness in the U.S. dollar and soaring commodities prices. The dollar dropped to fresh lows against the euro and fell below 100 yen during Asian trading Thursday, the weakest level for the greenback against the Japanese currency in 12 years. Gold surpassed the psychological benchmark of $1,000 an ounce for the first time, and crude oil briefly passed $111 a barrel.
Light, sweet crude oil rose 41 cents to settle at a record $110.33 on the New York Mercantile Exchange.
The Fed's Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage points. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.
Talk of regulatory changes for the mortgage industry Thursday were largely shrugged off by the market. Treasury Secretary Henry Paulson outlined a plan to provide stronger oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.
It appeared that what investors are really looking for is proof that the market's pain, and the economy's, will end. The S&P forecast seemed to provide more of a balm than any regulatory changes could.
The market is also concerned by more evidence of weak consumer spending. The Commerce Department reported that retail sales fell in February, after analysts predicted an increase.
"Things just aren't good for the consumer, and thus, they're not good for Wall Street, Caughey said.
In other economic news, Labor Department said the number of workers seeking unemployment benefits was unchanged last week. A government report released last week said employers cut payrolls by 63,000 in February — the second straight month of losses — and sent a wave of unease across Wall Street.
Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where volume came to 1.84 billion shares.
The Russell 2000 index of smaller companies rose 12.40, or 1.9%, to 679.71.
Overseas, Japan's Nikkei 225 index tumbled 3.3% to its lowest level in 2 1/2 years. Britain's FTSE 100 fell 1.5%, Germany's DAX index slid 1.5%, and France's CAC-40 lost 1.4%.
Plunging in Tokyo were shares of exporters such as Toyota (down 3%), Honda (4.4%) and Canon (4.3%). The dollar dipped to 99.75 yen in Asian trading — first time it's sunk below 100 yen since November 1995 — before bobbing back to close above 100. A stronger yen makes Japanese-made products more expensive in the U.S. market and shrinks dollar earnings from the U.S. when they're brought home to Japan as yen.
"It could do a lot of psychological damage in the short term and will hurt Japan's growth going forward," says Chi Lo, research director at Ping An of China Asset Management in Hong Kong. Lo says Asian markets are also jittery about the health of the U.S. economy and stock market. "The market is very volatile. It all depends on the U.S. economic situation. (Restoring calm) could take another six months, if not longer."
In Hong Kong, the Hang Seng index tumbled 1,121.12 points, or 4.8%. Shares fell 2.6% in South Korea, 2.6% in Taiwan, 4.5% in Indonesia, 3.8% in Singapore and 2.5% in Malaysia. Airline stocks skidded on rising oil prices: Cathay Pacific shares nosedived 4.5% and China Southern Airlines shares dropped nearly 10%.
"It's going to be a volatile and difficult year," Lo says.
Contributing: USA TODAY's Paul Wiseman in Hong Kong; wire reports