Stocks Claw Back Prior Session's Losses

It just goes to show you, a little attitude never hurts: Stocks clawed back all of the prior session's losses as oil hit its lowest point since May and consumer confidence improved.

Banks had a wobbly morning after news that Merrill Lynch plans another hefty writedown and capital-raising move but rallied to the finish line as investors digested the news.

The rally was strong enough to yank all three major indexes out of bear-market territory: The Dow Jones Industrial Average rose 266.48, or 2.4 percent, to close at 11397.56. The S&P 500 gained 2.3 percent and the Nasdaq advanced 2.5 percent.

Most traders are holding out for a bottoming in this market and today's rebound was more an indication of relief about oil prices and the bar being low for economic gauges.

"I’m frustrated, they won’t give me my pony!" Art Cashin, director of floor operations, said on CNBC, referring to his desire for capitulation. But, he added, "Summers are tough to have climactic bottoms."

Oil prices fell more than $2 a barrel, settling at $122.19 a barrel, as demand in the U.S. continued to drop and the average price of gasoline fell below $4 a gallon for the first time in seven weeks.

Consumer confidence ticked higher, pulling it off a 16-year low as concerns about inflation subsided somewhat, the Conference Board reported. The group's gauge of the consumer mood increased to 51.9 in July, the first increase since December, from an upwardly revised 51 in June. Economists had expected a reading of 50, according to a Reuters survey.

More dismal news for the housing sector: Home prices fell by 15.8 percent-- the steepest decline on record -- in May, a 20-city index compiled by Standard & Poor's and Case-Shiller showed. A narrower measure of 10 cities tumbled 16.9 percent, also the biggest decline on record.

There was no time for taking a breather in the financial sector. Just as soon as we cleared the second-quarter and all of its baggage, it was on to the third quarter.

Merrillshares gained 7.9 precent as investors wondered if the brokerage's plan to write down another $5.7 billionand raise $8.5 billion may signal that we're near the end of this wave of writedowns.

Citigroup added 5.9 percentafter Deutsche Bank widened its 2008 loss projectionfor the largest U.S. bank and suggested it may take another $8 billion in writedowns in the third quarter.

Bank stocks were among the day's best performers, with the S&P financial-sector index finishing up 7.5 percent.

(How do you avoid landmines in the financial sector? Click on the video at left.)

General Motors jumped 8.2 percent after its financing arm, GMAC, announced that it would suspend subsidized auto leasing in Canadabeginning Aug. 1. No word yet on if it plans to do the same in the U.S.

U.S. Steel shot up 14 percent as surging steel prices helped the Pittsburgh company deliver what one analyst called "a blow-out" quarter. The company also delivered a strong outlook, indicating that the third quarter may be better than the second.

Amgen added 3 percent after two brokerages, Merrill and Citigroup, raised their ratings on the stock. The pharmaceutical company beat expectations late Monday and raised its 2008 forecast.

Consumer products company Colgate-Palmolive reported its earnings jumped 19 percent, topping forecasts, helped by price increases and sales in emerging markets.

Leather handbag maker Coach hit Wall Street's target, helped by strength in Asia, but its full-year forecast fell short.

"We've decided to plan cautiously until we see concrete evidence of a favorable shift in consumer spending," Coach Chief Executive Lew Frankfort said. "We believe the consumer malaise will continue well into 2009 and as such we are extremely cautious in our outlook."

Analysts have brought down their estimates for 2008 S&P 500 earnings but Citi Investment Research strategists say the 21-percent growth expected for 2009 is still too high, going so far as to call it "irrational" and unattainable unless commodity prices fall considerably.

While earnings season is winding down in the U.S., several major European names weighed in with results. SAP reported better-than-expected software sales, while oil giant BP topped estimatesby nearly $1 billion. Alcatel-Lucent, meanwhile, said its chairman and CEO would step downfollowing a series of profit warnings. And Sony reported its profit fell due to weak mobile phone sales.

Still to Come:

WEDNESDAY: Mortgage applications; crude inventories; Earnings from Comcast, 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 Chevron

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