NEW YORK (AP) - Wall Street extended its big advance Monday as investors
applauded a new agreement that will give Bear Stearns Cos. shareholders five
times the payout than was outlined in a JPMorgan Chase & Co. buyout deal a week
ago. Investors were also pleased by a stronger-than-expected housing report and
sent the Dow Jones industrial average up about 225 points.
Stocks rose after JPMorgan said the company will boost its offer to $10 per
share from $2. The revised plan is aimed at soothing Bear Stearns shareholders
upset over JPMorgan's earlier offer, which was made at the behest of the Federal
Reserve when Bear Stearns was near collapse.
Bear Stearns shares more than doubled, jumping $6.81 to $12.77, while
JPMorgan rose $1.12, or 2.4 percent, to $47.09.
Beyond the troubles of the financials, Wall Street was examining the housing
sector -- the root of much of investors' current angst. A real estate trade
group said sales of existing homes rose rather than declined in February, as had
been expected.
The Fed's move and even the housing figures appeared to alleviate some of
Wall Street's concerns about souring mortgage debt and lenders' resulting
hesitance to grant loans of any sort. The latest Bear Stearns deal signals that
investors' losses might not be as sizable as feared.
"The reason we've rallied the last three or four days is people are saying
'Hey, even if this paper is worth less than people think, the Fed is willing
come in a buy it at some level,'" said Charlie Smith, chief investment officer
at Fort Pitt Capital Group.
In midday trading, the Dow rose 226.24, or 1.83 percent, to 12,587.56 after
rising more than 260 points on Thursday, the last day of trading before the
Easter weekend.
Broader stock indicators also rose. The Standard & Poor's 500 index rose
24.22, or 1.82 percent, to 1,353.73, and the Nasdaq composite index rose 63.96,
or 2.83 percent, to 2,322.07.
The Russell 2000 index of smaller companies rose 20.79, or 3.05 percent, to
702.21.
Monday's gains follow a volatile but ultimately strong week for the markets.
The Dow and the S&P each showed gains of more than 3 percent for the week, while
the Nasdaq advanced more than 2 percent.
Bond prices fell sharply. The yield on the benchmark 10-year Treasury note,
which moves opposite its price, rose to 3.50 percent from 3.34 percent late
Thursday. The dollar was mixed against other major currencies, while gold prices
rose.
Light, sweet crude fell 46 cents to $101.38 per barrel on the New York
Mercantile Exchange.
The housing sector, which has offered a steady drumbeat of mostly negative
news in recent months, gave investors a welcome lift. The National Association
of Realtors said sales of existing homes rose by 2.9 percent in February to a
seasonally adjusted annual rate of 5.03 million units. It was the biggest
increase in a year and Wall Street had expected a slight decline. Still, the
median home price fell by the largest amount on record.
Smith said further readings on the housing sector, including a report on
home prices due Tuesday, could help determine whether Wall Street's enthusiasm
will continue or prove short-lived. Further weakness in housing, he said, could
mean banks will continue to struggle with a locked-up credit market.
Still, the Fed's move to broker the Bear Stearns buyout has allowed
investors the sense that not all the debt guaranteed by mortgages is "nuclear
waste." It will be some time before Wall Street knows whether the write-downs on
mortgages already taken will be sufficient.
"The fact that the Fed is willing to come in and buy it at some level makes
people think 'OK, it's not zero,'" Smith said, referring to the troubled debt.
Beyond housing, a report from Tiffany & Co. helped assuage some concerns
about the health of high-end consumers. The jeweler said loans it made to a
diamond company weighed on its fourth-quarter profit, but that earnings
excluding items were in line with Wall Street's expectations. Tiffany jumped
$4.76, or 12 percent, to $43.36.
Walgreen Co. rose $1.98, or 5.4 percent, to $38.76 after the drugstore chain
said its second-quarter earnings rose 5 percent as it controlled expenses to
offset slower sales growth.
Advancing issues outnumbered decliners by about 5 to 1 on the New York Stock
Exchange, where volume came to 675.3 million shares.
Overseas, Japan's Nikkei stock average closed down 0.02 percent. Markets in
Europe and in Hong Kong were closed for Easter Monday.
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