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Dow Jumps 1%; Caterpillar, Bear Climb

Cindy Perman
Wednesday, 12 Mar 2008 | 11:36 AM ET

Blue-chip stocks jumped Wednesday as oil prices receded and investors continued to digest the Federal Reserve's liquidity plan.

All three major indexes -- the Dow Jones Industrial Average, S&P 500 index and Nasdaq -- struggled to post gains, but the Dow jumped more than 100 points, or 1 percent, in late-morning trading.

Crude oil slipped below $108 a barrel, after earlier topping $109 a barrel, amid an unexpectedly large increase in crude-oil suppliesdue to higher imports and lower refinery utilization. Crude inventories rose by 6.2 million barrels to 311.6 million barrels last week, the EIA reported, more than three times the increase analysts had expected. The build left crude stocks at their highest levels since late November.

Many investors took comfort in the Fed's plan to pump $200 billion into the cash-starved credit markets, propelling U.S. stocks to their best one-day performance in five years on Tuesday.

Overseas in Europe and Asia, stocks rallied Wednesday after U.S. stocks on Tuesday had their best showing in five years amid enthusiasm for the Federal Reserve's creative liquidity plan.

But investor Jim Rogers, CEO of Rogers Holdings, slammed the Fed for its actions, telling "Squawk Box Europe" that they will cause inflation to soar and bring about a worse recession than the one the central bank is trying to avoid.

"No country in the world has ever succeeded by debasing its currency," Rogers warned.

Rogers said he would resign if he were in the shoes of Fed Chairman Ben Bernanke, criticizing the Fed for accepting mortgage-backed securities as collateral.

Other analysts said it was a necessary move in the short term.

"The main issue … is that we have a process of de-leveraging which is threatening the whole financial system, mainly in the U.S. For the time being, what we need to do is find a way of oiling the wheels of de-leveraging," Marc Ostwald from Insinger de Beaufort told "Worldwide Exchange."

Some analysts expressed doubts that the rebound will last, as stocks had been close for their lows for the year because of persistent recession fears.

"You had such a rebound yesterday, you might get some echoes from that during early trading, but I would be surprised if that teased throughout the day," Peter Dixon, an economist at Commerzbank, said.

Caterpillar was the best performer on the Dow after the world's largest maker of bulldozers raised its revenue forecast, citing worldwide infrastructure spending.

Financials continued to rise, after the beaten-down sector led Tuesday's rally.

Bear Stearns shares jumped after CEO Alan Schwartz told CNBC that the company's $17 billion cash cushion has been virtually unchanged since the end of fiscal 2007 and he sees no pressure on liquidity. In an interview Wednesday morning, Schwartz said he's comfortable with analysts' first-quarter earnings estimates.

Punk Ziegel analyst Richard Bove, who cut his target for Bear Stearns shares in half Tuesday, saying the brokerage firm's business model was broken and a sale may be the best solution, cut his earnings outlook on three other investment banks ahead of earnings due out next week.

Bove slashed his 2009 and 2010 earnings estimates for Bear Stearns, Goldman Sachs , Lehman Brothers and Morgan Stanley , saying he doesn't expect a recovery in mortgages, credit derivatives, private equity and investment banking anytime soon.

All four firms "are likely to experience declines in activity until 2010," Bove said, and need to rebuild their business models.

Freddie Mac's CEO said at the company's analyst meeting today that the current U.S. housing market is the worst in a century. Freddie's finance chief added that "there is no dilutive capital raise planned."

Thornburg Mortgage soared after Bear Stearns raised its rating on the stock to "peer perform" from "underperform"

Other shares to look out for include Fannie Mae and Citigroup, which both rallied sharply Tuesday.

It's not a good prognosis for health insurers.

Humana shares plunged, making it the biggest drag on the S&P 500 index, after the health-care company lowered its earnings projection for the year, nearly halving first-quarter profit to between 44 and 46 cents per share from previous forecasts of between 80 and 85 cents per share. The company pegs its full-year profit between $4 and $4.25 per share, down from its prior forecast of $5.35 to $5.55 a share.

The gloomy outlook comes a day after rival insurer WellPoint cut its full-year guidance. That spurred a slew of downgrades across the sector as analysts said health insurers may not be the safe bet for a downturn that many investors had hoped.

Elsewhere in the sector, shares of UnitedHealth Group also declined. Aetna , which affirmed its full-year outlook earlier in the week, saw its shares tick higher.

Progenics Pharmaceuticals plummeted more than 50 percent after the biotech firm announced that a key late-stage clinical trial had failed.

-- Reuters contributed to this report

Coming Up:

WEDNESDAY: Weekly crude inventories; Treasury budget; Bill Gates on Capitol Hill
THURSDAY: Import prices; retail sales; weekly jobless claims; business inventories
FRIDAY: CPI, consumer sentiment

Send comments to cindy.perman@nbcuni.com.

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