NEW YORK— Despite more volatility Monday, stocks rose with the S&P 500 and the Dow up more than 2%, as investors snapped up beaten-down shares of financial companies.
Investors have been searching for signs of where the economy and the markets are headed after the fractious trading of the past two weeks. In a day devoid of economic news and with few earnings reports, investors early in the session seemed to avoid making big bets, though stocks later gained steam after midday. The move comes ahead of the Fed's meeting on interest rates Tuesday. Policymakers are widely expected to hold the benchmark rate steady at 5.25%; as usual, the greater concern is with the Fed's economic assessment statement. This time, investors will be looking to see what the Fed says about credit.
"I think a lot of it has to do with people sort of squaring up before the Fed on the short side, covering some shorts. I really wouldn't read too much into it," said Charles Norton, principal and portfolio manager at GNICapital, referring to the market's move higher and investors who sell stocks "short," betting that they will fall. Such investors can be forced to buy stock to cover their positions if they believe the market is poised to move higher.
The Dow Jones industrial average was up 286.70 points, or 2.2%, at 13,468.61. The Standard & Poor's 500 index was up 34.57 points, or 2.4%, at 1467.63. The Nasdaq composite index was up 36.08 points, or 1.4%, at 2547.63.
In afternoon trading, the Dow Jones industrial average rose 147.46, or 1.1%, to 13,329.37. The Dow has zigzagged during the session — falling as much as 17 points and before rising nearly 150 points.
The rally might not be as widespread as the rise in the major indexes suggests. In late afternoon trading, declining issues still outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where volume came to 1.25 billion shares.
Falling oil could also lend a boost to stocks. Light, sweet crude futures fell $2.28 to $73.20 on the New York Mercantile Exchange. Gold prices fell, while the dollar moved in a mixed range against other major currencies.
Stocks have endured a volatile couple of weeks as troubles in the global credit markets — rooted in the rise of subprime loan defaults in the U.S. — have unfolded. Some investors are concerned that bad subprime loans, those made to borrowers with poor credit, remain on the books of some financial companies and have yet to be disclosed.
"The shorts have had such tremendous success in the past few weeks in keeping this market down it's now oversold. The fact is that no one really knows what the Fed will might say — or do for that matter," Norton said.
Aaron Gurwitz, co-head of portfolio strategy at Lehman Bros. Investment Management, said while he would be surprised if the Fed were to adjust short-term interest rates, the central bank could indicate it stands ready to provide liquidity should credit markets seize up. He noted, however, that the repricing of credit that's occurring in the markets isn't something the Fed would likely want to stand in the way of.
"I think it's a short-term problem," he said. "I think that the uncertainty in the credit markets, the worries about a liquidity crisis that has to be dealt with, is a risk to the financial markets — but I think it's a long way from being a risk to the macro economy or the ability of most companies to make money."
Bond prices fell after rising during Friday's stock market pullback, signaling investors might be transferring money into stocks. The yield on the benchmark 10-year Treasury note rose to 4.73% from 4.68% late Friday. Bond prices move opposite yields.
Some of the session's major corporate news related to subprime loans and credit concerns. Bear Stearns Cos. co-President and co-Chief Operating Officer Warren Spector resigned after the collapse of two hedge funds that invested in risky mortgage-backed securities. Spector was directly in charge of the investment bank's asset management business. Bear Stearns fell.
Merrill Lynch rose after a UBS analyst upgraded the nation's largest brokerage. Analyst Glenn Schorr contends the problems in the subprime mortgage and credit businesses and the potential ripple effects are now baked into the share price, which has fallen nearly 25% for the year.
In other corporate news, UnitedHealth Group, the nation's second-largest health insurer, rose after raising its earnings forecast for 2007 following adjustments related to its Medicare business.
Cooper Tire & Rubber on Monday said it swung to a second-quarter profit after sales jumped 17%, driven by higher prices in North America and strong growth in Europe and Asia. The tire maker's results beat Wall Street's expectations. Cooper advanced.
Late Sunday, Japan's Fast Retailing raised its bid by $50 million to $950 million to acquire high-end clothing merchant Barneys New York. Barneys, owned by Jones Apparel Group Inc., has been the subject of a bidding war between Fast Retailing and Istithmar, a Dubai-based investment firm. Jones Apparel fell.
In trading abroad, London's FTSE 100 fell 0.6%, Germany's DAX index rose 0.1% and France's CAC-40 fell 1.2%.
Overnight, the often volatile Shanghai Composite Index rose 1.5% to a record 4628.11. Japan's Nikkei stock average dropped 0.4% at the close.
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