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Bernanke, Buffett Buoy Stocks; Lehman Jumps
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Stocks advanced Friday after a double shot of soothing comments from Federal Reserve Chairman Ben Bernanke and the Oracle of Omaha, Warren Buffett.
All three major indexes -- the Dow Jones Industrial Average, S&P 500 and Nasdaq -- were up more than 1 percent.
A pullback in oil prices also helped to boost sentiment. Light, sweet crude [US@CL.1
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] fell below $119 a barrel, after finishing above $121 on Thursday.
Bernanke called the recent decline in commodity prices and stabilization of the U.S. dollar "encouraging," in opening remarks at the Fed symposium in Jackson Hole, Wyo. These developments "should lead inflation to moderate later this year and next," Bernanke said in prepared remarks.
Meanwhile, Warren Buffett weighed in on everything from the dollar to Fannie Mae and Freddie Mac during an interview with CNBC. Buffett said he has no bets against the dollar and thinks stocks are more attractive now than a year ago. He also said Fannie Mae [FNM
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] and Freddie Mac [FRE
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] "are too big to fail," but shareholders could "lose a lot of money." (Read more from the interview in the Buffett blog.)
Fannie and Freddie shares fluctuated throughout the morning as short sellers continued to press the stocks. Short selling occurs when a buyer borrows stock at a higher price, betting it will decline, then buying it back at the lower price to profit from the difference.
Fannie and Freddie stocks have been battered throughout the week, suffering declines of more than 20 percent two days this week, amid speculation that they may be taken over by the Treasury and the stocks wiped out.
A collapse of Fannie and Freddie could spark panic selling in the market but market pros say that may be just what the market needs to hit rock bottom and get back on the road to recovery.
Lehman Brothers [LEH
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] shares shot up more than 10 percent after Korea Development Bank said Lehman was a possible acquisition target. The news comes after a newspaper reported on Thursday that Lehman sought to sell up to a 50 percent stake to China's biggest brokerage, CITIC Securities, or Korea Development Bank but the two Asian companies walked away after deciding the asking price was too high.
Shares in Lehman have plunged more than 80 percent since early 2007, leaving the bank worth some $9 billion at this week's valuations. CEO Dick Fuld has come under fire recently from everyone from Ladenburg Thalmann analyst Dick Bove to CNBC's Jim Cramer for not acting swiftly enough to shore up the bank's balance sheet. Given the firm's inability to convince Wall Street that its liquidity is stable, Bove said the firm is ripe for a hostile takeover and slapped the stock with a "buy" rating on that basis. Citigroup also has a "buy" rating on Lehman.
Meanwhile, the U.S. economy could be in danger from another property-related downturn. Commercial real-estate loans are now looking vulnerable, the New York Times reported.
On the earnings front, Gap [GPS
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] topped expectations after the bell Thursday, with margins improving.
AnnTaylor [ANN
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] also surpassed forecasts and backed its full-year outlook as tight control of inventories helped offset falling sales at the women's clothing chain.
Stocks in Europe were higher, with London leading the way after the government's revised figures said the UK economy remained flat in the second quarter. That opened the door to the possibility of an interest-rate cut. Trading on Asian markets was mixed.
STILL TO COME:
FRIDAY: Fed conference in Jackson Hole begins; Obama VP watch
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