Stocks closed higher Thursday after Standard & Poor's delivered the words Wall Street was waiting to hear: The end is in sight.
The Dow Jones Industrial Average closed up more than 35 points, or 0.3 percent after earlier being down by as much as 250 points. The Nasdaq and S&P 500 also finished in positive territory.
The market started off the day deep in the red following news of an imminent collapse of hedge fund Carlyle Capital and the dollar's drop to a 12-year low against the yen. But things turned around in the afternoon after the S&P's optimistic remarks.
Stocks finished off their high for the day, reflecting the uncertain footing in this market. Technically only the Nasdaq is in bear territory -- down more than 20 percent from its October high -- but the entire market is acting like a bear.
Credit-ratings agency S&P said subprime-mortgage write-downs for big financial institutions could hit $285 billion but they're likely past the halfway mark, in a report issued Thursday.
That soothed investors' anxieties about all of the shoes dropping in the financial sector form the credit crunch.
"The S&P comes out and says that the mortgage crisis -- or write-downs -- is half over, if not more ... Everbody understands, if it's half over, it's time to buy," said Michael Cohn, chief investment strategist at Atlantis Asset Management.
"It was a great sign that somewhat reinforced the [market's] double bottom that we made just recently," Cohn said, and everybody knows, "there's no such thing as a triple bottom."
Adding to the end-in-sight chatter, U.S. House Financial Services Committee Chairman Barney Frank is proposing a mortgage-bailout plan. The program would allow the Federal Housing Authority to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages.
Earlier, the market was rattled by the dollar's drop below 100 yen-- a 12-year low -- and news that Carlyle Capital is on the brink of collapse. Lenders to the Netherlands-listed hedge fund, an affiliate of U.S. buyout firm Carlyle Group, have begun to force the sale of Carlyle's assets as the unit has missed margin calls and is now in default on about $16.6 billion of its loans and expects to default on the rest.
Some of the day's biggest gainers were homebuilder, materials and energy stocks. Among the S&P's top 10 sector indexes, the materials index was the biggest gainer, with a 2.1 percent increase, followed by energy with a 1.4 percent advance.
Even financials, which had taken a beating on the Carlyle news, rebounded. The S&P financial index closed up 0.4 percent.
Merrill Lynch, Goldman Sachs and Lehman Brothersall finished higher. Even Fannie Mae and Freddie Mac rallied.
J.P. Morgan and Bear Stearns , however,declined.
Bear Stearns shares has it own share of problems this week, with rumors circulating about liquidity problems at the brokerage. The company has come out and said there aren't any such problems, but investors don't seem to be convinced. The news Thursday is that, now, even hedge funds and other traders are are nervous about entering into long-term trades with the bank, requiring supervisor approval for any dealings with Bear Stearns.
Forecast Slams GM Stock
Auto stocks skidded after a brokerage slashed its outlook for major U.S. auto makers.
The Dow's top decliner was General Motors , after Morgan Stanley said it now expects the top U.S. auto maker to post a loss for 2008. The brokerage also widened its loss estimate for No. 3 Ford .
AIG was the second biggest decliner on the Dow amid concerns that the world's largest insurer could suffer larger-than-expected losses from its credit-derivatives portfolio, which has already led to $11 billion in write-downs.
Treasury Secretary Henry Paulson said he and top policy makers are calling for an overhaul of rules for credit markets and mortgage brokers.
"The objective here is to get the balance right -- regulation needs to catch up with innovation and help restore investors confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it," Paulson, who heads the panel, said in a speech to the New York Press Club in Washington this morning.
In economic news, retail sales unexpectedly fell 0.6 percent in February, while jobless claims held steady at 353,000. U.S. import prices rose by 0.2 percent, less than expected, last month. Business inventories rose 0.8 percent, more than expected, in January, though sales posted their biggest increase in almost a year.
Ambac Keeps Top Ratings; EA Offer Turns Hostile
Shares of Ambac skidded even as the bond insurer kept its top rating from Moody's and S&P after raising $1.5 billion in capital.
Washington Mutual advanced after a British hedge fund offered to participate in a consortium to recapitalize the bank.
In the tech sector, Electronic Arts' effort to acquire Take-Two Interactive Software has turned hostile, with EA launching a tender offer for its rival at $26 a share. Take-Two, publisher of the popular "Grand Theft Auto" video game, last month rejected EA's $2 billion unsolicited all-cash offer.
Target shares slipped. After the closing bell Wednesday, the discount retailer said it is in talks to sell half of its credit-card receivables business.
Elsewhere in retail, shares of Men's Warehouse rebounded from an earlier decline after the chain beat earnings expectations, but issued an earnings outlook of 20 to 24 cents a share, well below the expected 44 cents a share.
Some analysts have suggested the retail sector may already be in a recession.
"It certainly feels like a recession," Men's Warehouse CEO George Zimmer said.
Airline stocks bounced back after earlier turbulence. Rumors indicate that major airlines will begin paring their flight schedules due soaring jet-fuel prices and weak demand for air travel.
American parent AMRrallied with the sector, though United and Northwest remained lower.
Amgen and Johnson & Johnson finished higher. Earlier, a panel recommended that the FDA curb use of anemia drugs sold by the companies for cancer patients because of serious safety concerns.
-- Bob Pisani contributed to this report.
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