Wall Street Has Second Straight Big Rally

Wednesday, November 28th 2007, 1:12 pm
By: News On 6

NEW YORK (AP) _ Wall Street barreled higher Wednesday, driving the Dow Jones industrials up more than 300 points after a Federal Reserve official hinted that the central bank may lower interest rates again.

The market was elated after Fed Vice Chairman Donald Kohn told the Council on Foreign Relations that recent financial turbulence has reversed some of the improvement seen in markets in previous weeks, and could squeeze credit for households and businesses. He said tight financial conditions may merit ``offsetting'' policy from the central bank.

For investors, the possibility for lower rates seemed more compelling than persistent concerns about a slowdown economic growth. The Fed has already reduced rates at its last two meetings, and continues to inject billions of dollars into the financial system through repurchase agreements to help calm the shaky markets. The central bank will hold its final rate-setting meeting of the year on Dec. 11.

``Everything we're seeing in the market is revolving about credit and encouragement that the Fed is going to bail us out again,'' said Alexander Paris, economist and market analyst for Chicago-based Barrington Research. ``Investors are kind of ignoring the economic news like housing and durable orders that were all weaker than expected.''

Indeed, signs that the Fed will reduce rates to keep cash flowing freely helped overshadow reports showing that in October, sales of existing homes fell for the eighth consecutive month and orders for big-ticket manufactured goods fell for the third straight month.

Plunging oil and gold prices also lifted investors' hopes for a rate cut _ if inflation is in control, policy makers have less reason to keep rates high.

The Dow soared 300.61, or 2.32 %, to 13,259.05, adding to the blue chip index's 215 point gain on Tuesday.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 33.21, or 2.33 %, to 1,461.44, and the Nasdaq composite index gained 70.85, or 2.75 %, to 2,651.65.

The dollar was mixed against other major currencies.

Crude oil fell $3.24 to $91.18 a barrel on the New York Mercantile Exchange. The government reported an overall decline in crude supplies that was close to analyst expectations, but supplies grew at the closely watched Nymex delivery terminal in Cushing, Okla.

Government bonds slipped as stocks rallied. The yield on the benchmark 10-year Treasury note rose to 4.02 % from 3.95 % late Tuesday.

Wall Street has had a volatile week so far. Economic and credit market concerns sent the Dow plunging 240 points on Monday, pushing the index to the level of a 10 % market correction before it rebounded on Tuesday. Investors, though still anxious about the credit market crisis and losses at major financial institutions, were somewhat relieved after the investment arm of Arab city state Abu Dhabi invested $7.5 billion in Citigroup Inc.

Late Tuesday, Wells Fargo & Co. projected $1.4 billion in pretax losses on home equity loans that borrowers have stopped repaying amid a worsening housing slump. The losses at the fifth-largest U.S. bank were substantially less than charges taken by its larger competitors.

However, financial institutions rallied as investors hoped the industry can navigate through the credit crisis. Wells Fargo rose $1.45, or 4.9 %, to $31.28; Citigroup rose $2.08, or 6.9 %, to $32.40; and Merrill Lynch rose $3.96, or 7.5 %, to $57.02.

Wall Street was also more optimistic about the lending industry after government-sponsored mortgage investor Freddie Mac halved its dividend and said it would sell $6 billion of preferred stock. Freddie Mac rose $4.12, or 16 %, to $29.85, and its counterpart Fannie Mae rose $3.69, or 12.6 %, to $33.09.

Advancing issues led decliners by nearly 7 to 1 on the New York Stock Exchange, where volume came to 907.7 million shares.

The Russell 2000 index of smaller companies rose 21.79, or 2.93 %, to 765.06.

Overseas, Japan's Nikkei stock average fell 0.45 %. Britain's FTSE 100 rose 2.70 %, Germany's DAX index rose 2.55 %, and France's CAC-40 rose 2.34 %.