Wall Street Heads for Major Rebound After Horrible Week

October 13, 2008 at 8:40 am Leave a comment

Wall Street headed for a huge rebound Monday as investors, hoping that the stock market is finding some footing after eight sessions of devastating losses, sent stock futures indexes sharply higher.

The market appeared relieved by pledges of further coordinated actions by European and U.S. authorities to aid the crippled banking system, including plans by the Treasury to buy U.S. bank stocks.

Dow Jones industrial average futures rose 344, or 4.1 percent, to 8,714. Standard & Poor’s 500 index futures rose 45.10, or 5.06 percent, to 936.10. Nasdaq 100 index futures rose 56.50, or 4.41 percent, to 1,339.00.

Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, said that while the market is expecting a snapback rally after steep declines logged since last month, sustainable gains could prove more elusive.

“Everybody knew that we were going to have an up day eventually,” he said. “When everybody expects something it never really comes true.”

He said that while he’s still expecting a rally, it likely will come with more volatile trading.

Investors in Asia and Europe were already buying, grabbing stocks after last week’s rout and action by major governments over the weekend to bolster investor confidence.

In Asia, Hong Kong’s Hang Seng index surged 10.2 percent. Markets in Japan were closed for a holiday. In afternoon trading in Europe, Britain’s FTSE 100 jumped 3.46 percent, Germany’s DAX index rose 6.84 percent, and France’s CAC-40 jumped 6.09 percent.

Still, while the markets were upbeat early Monday, they were also well aware that there is much to be done to heal the banking system and the credit markets that have come to a virtual halt. Moreover, even if there is heavy buying when trading opens Monday, Wall Street can expect to see back-and-forth trading in the coming days and weeks as investors remain nervous. But many observers had said the market was overdue for some version of a bounce-back after one of the worst-ever week’s on Wall Street.

The Bush administration is working on implementing its $700 billion financial rescue plan. The White House is consulting with six private law firms to determine the best way to buy ownership stakes in a broad number of banks. The plan to buy shares of banks is aimed at getting capital to financial institutions faster than purchasing their soured mortgage-backed assets.

“Everybody is basically waiting on the decision on where they’re going to inject cash,” said Rovelli. He said with the bond markets closed for the Columbus Day holiday, U.S. government officials are likely holding off on announcement of details about where it might invest money until all major global markets are open.

Neel Kashkari, the assistant Treasury secretary who is interim head of the program, said officials have been developing rules to govern the purchase of soured assets. The announcement contained few details about the government will sweep up bad assets and take stakes in banks.

The Federal Reserve also said it would make enough U.S. dollar funds were available to meet demand.

Investors awaited digested word from the Bank of England that it would use up to $63 billion to the three largest British banks to help shore up their balance sheets.

The Bank of England, the European Central Bank and the Swiss National Bank jointly announced plans to work together to provide as much short-term funding as necessary to help revive lending. The Bank of Japan said it was considering taking similar steps.

After a series of weekend meetings in Washington of heads of the Group of Seven nations, the gains in markets in Asia and Europe signaled that investors found comfort from the actions and pledges coming from government officials.

The surge in stock futures comes after a dismal week on Wall Street that erased an estimated $2.4 trillion in shareholder wealth. The Dow, after eight consecutive daily losses that totaled just under 2,400, or 22.1 percent, finished at its lowest level since April 2003, and also suffered its worst weekly percentage loss ever, a fall of 18.2 percent.

Meanwhile, the S&P 500 lost 15.3 percent last week and the Nasdaq composite index fell 15.3 percent.

Investors worried that banks’ reluctance to lend to one another would imperil economic activity by making it harder and more expensive for businesses and consumers to get a loan.

Early Monday, Wall Street found some relief from Mitsubishi UFJ Financial Group’s announcement that it closed on its $9 billion investment in Morgan Stanley a day earlier than expected. Morgan Stanley lost nearly 60 percent of its value last week as investors worried that the deal would fall apart. The agreement gives Morgan a much-needed injection of cash.

Morgan Stanley shares rose 28.2 percent to $12.41 in premarket electronic trading.

The dollar was mixed against other major currencies.

Light, sweet crude rose $4.49 to $82.19 in premarket electronic trading on the New York Mercantile Exchange after oil fell to its lowest level in 13 months last week.


On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Source: AP


Entry filed under: Finances, National. Tags: , , , , , , , , .

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