Wall Street leaps higher as bank confidence improves
NEW YORK : Wall Street stocks rocketed on Tuesday as hopes mounted that stressed banks are starting to put housing-related investment losses behind them and come clean about outstanding mortgage loan write-offs.
Stocks gained after the US investment bank Lehman Brothers said it had raised fresh capital totalling four billion dollars and as Swiss banking giant UBS divulged fresh losses, but raised hopes it was getting a grip on its stricken balance sheet.
The leading blue-chip Dow Jones Industrial Average closed up a large 391.47 points (3.19 percent) at 12,654.36.
The Nasdaq tech-heavy composite index jumped 83.65 points (3.67 percent) to 2,362.75 while the Standard & Poor’s 500 index surged 47.48 points (3.59 percent) to close at 1,370.18.
Lehman Brothers said it had raised fresh capital of four billion dollars in a special share offering to help bolster its finances which have been squeezed by mounting mortgage investment losses and a related credit crunch.
“The significant oversubscription for this deal demonstrates the confidence that investors have in Lehman Brothers,” Lehman’s chief financial officer, Erin Callan.
Lehman executives said they had increased the number of special shares offered to four million because of heightened demand from investors seeking to snap up the shares.
Lehman’s shares spiked 10.8 percent to close at 41.64 dollars.
UBS, the biggest Swiss bank, meanwhile revealed further hefty write-downs of 19 billion dollars on mortgage investments tied to sub-prime US home loans granted to Americans with poor credit.
The bank wrote off 18.4 billion dollars in such investments last year, but said on Tuesday it plans to raise almost 15 billion dollars in fresh capital as it ousted its embattled chairman, Marcel Ospel.
Market analysts said investors were looking further ahead and expressed increased confidence that the banking sector might be regaining its footing.
“The equity markets continue to be hit almost daily with some new worry over the sub-prime fallout and its impact on the housing industry and the economy in general,” said John Wilson, a co-director of equity strategy at Morgan Keegan.
“The market appears to be looking through the trough, though, if the behaviour of the housing and transportation stocks is any indicator,” Wilson said.
Although the two-year-old US housing downtown is showing scant signs of stabilising and many economists believe the economy has fallen into a recession, some investors are hopeful that the worst may soon be over particularly as the Federal Reserve has slashed three percentage points off interest rates in recent months.
Such rate cuts, under more settled economic times, would be expected to spur economic growth.
Other banking and financial shares also surged as hopes mounted that the industry was beginning to put its mortgage losses behind it.
Citigroup, which has also seen its finances buffeted by mortgage-related losses, closed up 11.3 percent at 23.84 dollars.
Merrill Lynch was 12.9 percent higher at 46.02 dollars and JPMorgan Chase finished up 9.4 percent at 47.00 dollars.
Bond prices dropped as money flows moved back into equities.
The yield on the 10-year US Treasury bond rose to 3.545 percent from 3.432 percent on Monday and that on the 30-year bond increased to 4.382 percent from 4.306 percent. Bond yields and prices move in opposite directions.
European share markets also benefited from a confidence boost as overseas investors also bet that the global financial crunch could be nearing an end.
In London the FTSE 100 index gained 2.64 percent, the Paris CAC 40 shot up 3.38 percent and the Frankfurt Dax added 2.84 percent. - AFP/de