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Oil Bounces Back, Clips Stock Rally

Oil made a comeback Wednesday, shutting down an early rally spurred by an unexpected rise in private payrolls and measures by the goverment to stabilize financial markets.

Oil jumped about $5 a barrel, trading above $127 a barrel, after the EIA reported that crude inventories declined by 100,000 barrels last week to 295.2 million barrels. Nymex crude is currently at a 7-week low, which has givent stocks a boost.

Financials had been leading the Dow, but oil's resurgence quickly sent financials down the stack and energy giants ExxonMobil and Chevron rose to the top of the Dow heap.

In economic news,private employers added 9,000 jobs to their payrolls in July, ADP reported. That came as a surprise to economists, who had expected a decline.

The report is closely watched for insight into the government's jobs report, which is due out on Friday. Economists surveyed by Reuters expect to see that nonfarm payrolls shed 75,000 jobs in July, which would be the seventh straight month of job losses. However, the ADP doesn't have a stellar track record for forecasting what the government reports, so Friday could bring a different surprise. Strategists say one key thing to watch on Friday is the prior month's revisions, which give a better impression of the overall job picture.

Taking a bird's eye view, Paul Nolte, director of investments at Hinsdale Associates, points out that payrolls number has been negative all year, leaving the current 12-month average at roughly zero. "Before we get to the bottom of this recession, expect to see the 12-month average drop to minus-100,000," he said.

"Across the board there are a lot of different markets that are at very critical pivot points and the market is really deciding which way to take it," Donna Heidkamp, senior trading advisor from RJO Futures, told "Worldwide Exchange," adding that stocks are likely to trade sideways and stay choppy all week.

The market was buzzing about two government moves this morning: The Federal Reserve has decided to extend its emergency-lending program for Wall Streetthrough Jan. 30. That was initially slated to end in September. Also, the SEC extended its emergency rule curbing short sellingon major financial firms through Aug. 12.

Shares of Fannie Mae and Freddie Mac advanced, boosted by the extension on the short-selling rule and the president's approval of the housing-rescue plan.

Weakness seeped into homebuilders after a report showed mortgage applications dropped to the slowest pace since December 2000 last week.

Among energy leaders, Hess reported second-quarter earnings of $2.76 a share, ahead of expectations. The company said oil production increased 4 percent in the quarter.

Cable TV company Comcast narrowly missed expectations, while Corning earnings surged, boosted by a one-time tax gain and strong demand for glass used in flat-screen TVs and computers. However, the company issued a weaker-than-expected sales forecast, which sent its shares tumbling.

Garmin shares tumbled more than 15 percent, its biggest drop in five years, after the company slashed its 2008 forecast and delayed the launch of its smartphone, citing weak demand.

Shares of Elan skidded about 35 percent and Wyeth fell more than 10 percent after a study showed a potentially serious side effectin an Alzheimer's drug jointly made by the companies. The side effect shown in some patients was as buildup of fluid in the brain.

Still to Come:

WEDNESDAY: Earnings from Disney, Interpublic, Starbucks and Visa
THURSDAY: Q2 GDP; Chicago and Kansas City Fed branches report on manufacturing; Earnings from Aetna, Altria, ExxonMobil and Motorola
FRIDAY: Auto sales; Jobs report; construction spending; ISM manufacturing report; Yahoo annual shareholder meeting; Earnings from GM, Chevron

Send comments to cindy.perman@nbcuni.com.

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