Wall St ends the week on a bright note

US stocks posted strong gains on Friday during a truncated holiday session as retailers hoped a post-Thanksgiving shopping spree would soothe fears about a consumer slowdown.

Traders went bargain hunting following sharp falls earlier this week, with financial stocks spurring Friday’s rally amid lower than average volumes.

The S&P 500 rose 1.7 per cent to 1440.70 before markets closed at lunchtime.

The Dow Jones Industrial Average gained 1.4 per cent to 12980.88 while the Nasdaq Composite rose 1.3 per cent to 2596.60.

E-Trade Financial was the stand-out performer on Friday, soaring 25.1 per cent to $5.33 on reports that the struggling online brokerage is in takeover talks. Potential acquirers include rivals TD Ameritrade and Charles Schwab.

The S&P financial index gained 3.1 per cent to 393.74 while the investment bank index added 3.6 per cent to 178.21.

With shoppers hitting stores on “Black Friday”, beginning the most important shopping period of the year, US retailers were in focus amid worries about a lacklustre holiday season.

Circuit City rose 19.5 per cent to $6.51. Although there was no news from the company, an analyst at JP Morgan said earlier this week that the struggling retailer would need to find a strategic partner or acquirer to complete a turnaround.

Wal-Mart gained 1.9 per cent to $45.73 while Target put on 5.7 per cent to $57.17. The S&P retail index rose 2.7 per cent to 416.54.

However Friday’s gains were not enough to offset losses earlier in the week.

The bears have remained in charge on Wall Street amid fears about a US economic slowdown and the continuing fall-out from the subprime mortgage crisis bled confidence from jittery equity markets.

The Federal Reserve added to the prevailing malaise this week after it gave a downbeat assessment of prospects for US economic growth.

“We’ve certainly upped the odds of a recession,” Quincy Krosby, chief investment strategist at The Hartford, said.

The S&P 500 ended the week down 1.2 per cent. The S&P 500 has remained below its 200-day moving average for 10 consecutive sessions, another bearish indicator, - longer than during the initial summer credit squeeze.

The Dow Jones Industrial Average was down 1.5 per cent on the week, briefly falling below its mid-August trough before bargain hunters helped the index recover some ground today.

Meanwhile the Nasdaq Composite was down 1.5 per cent this week. The Nasdaq has fallen 9.2 per cent from its 52-week high, set on October 31, as technology stocks continued to struggle to find a footing.

Transports, a traditional bellwether of economic sentiment, fared particularly poorly with crude oil prices rising above $99 a barrel this week.

The Dow transport index, down 2.5 per cent at 4451.07, flirted with a key bearish indicator, a 20 per cent fall from its high for the year.

Among the worst performing stocks this week were Fannie Mae and Freddie Mac, government-sponsored enterprises which provide liquidity to US mortgage markets by buying, securitising and guaranteeing home loans.

The declining value of its mortgage-related securities contributed to a $2bn loss at Freddie Mac this week, with the shares falling 35 per cent to $26.47.

Freddie warned it would need to raise capital, possibly by slashing its dividend in half, in order to raise capital to meet regulatory requirements.

Fannie Mae, a rival mortgage agency, was down 20.9 per cent to $32.20, amid continuing worries about the way it accounts for loan losses.

Concerns that these agencies will be constrained in their ability to provide liquidity to the broader mortgage market hit a range of financial stocks this week.

Countrywide Financial sank 20.1 per cent on the week to $9.65, after analysts said the company could be affected if GSEs stopped buying its mortgages in the secondary market.

However, the company said rumours that it would seek bankruptcy protection were “absolutely false”.

Meanwhile the big banks once again suffered a torrid week, precipitated by a Goldman Sachs analyst note, which forecast another $48bn in writedowns by the end of 2008.

Citigroup shed 6.8 per cent to $31.70 after the note said Citi could take $22bn in write-downs linked to its portfolio of collateralised debt obligations, $11bn this quarter, and $11bn next year.

Homebuilder stocks were also punished amid a deepening malaise in the US real estate market.

The S&P homebuilder index was down 14.3 per cent this week at 318.07, declining for six consecutive days before traders bought into weakness today. Shares in Pulte Homes, shed 25 per cent of their value this week at $9.63.

With house prices plummeting, nervous investors are keeping a careful eye on retail sales amid fears that belt-tightening consumers may deliver a poor shopping holiday season.

“Retailers have been really beaten down,” Ms. Krosby said. “The market is definitely looking for sign that a ‘Santa Claus rally’ in the offing.”

Office Depot fell 8.6 per cent to $17.50 this week after quarterly earnings fell 9 per cent while Lowe’s, the home improvement chain, was down 11 per cent at $22.27 during the period after it cut its full-year outlook. Gap declined 6 per cent to $18.89 after same-store sales fell 5 per cent.

However the retail picture was not universally bleak. Nordstrom rose 9.9 per cent to $35.72 on the week, after the department store’s quarterly earnings beat expectations. Electronics retailer

Elsewhere General Motors was one of the Dow’s biggest fallers this week, down 7.2per cent at $27.16, in spite of some positive news from GMAC Financial Services. GMAC, Ford’s former financing arm, in which it still holds a 49 per cent stake, said it had bid for a “non-US mortgage lender” to combine with ResCap, a struggling subsidiary.