Pat Dollard

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WSJ:

By ROB CURRAN, GEOFFREY ROGOW and PETER A. MCKAY
The Federal Reserve’s latest efforts to resuscitate private lending and the broader economy helped push stocks and bonds higher Wednesday afternoon.

The Dow Jones Industrial Average, which has climbed in six of the last seven trading sessions, gained 90.88 points, or 1.2%, to 7486.58. The S&P 500 stock index rose 16.23 points, or 2.1%, to 694.35.

The Fed said it will buy up to $300 billion in longer-term Treasurys and buy hundreds of billions of dollars more in mortgage-backed securities in an effort to aid the ailing economy. Coming into Wednesday many analysts argued that the Fed was unlikely to take such a bold step. The move thus shocked markets, causing an immediate rally in stocks and pushing bonds up dramatically within minutes of the announcement of the Fed’s move.

“It’s sort of an admittance that the incremental approach hasn’t worked so, they’re taking more of a shock-and-awe approach to which I can only say, bravo,” said Max Bublitz, chief strategist at SCM Advisors in San Francisco. “I see this as the anchor that can pull down private borrowing rates.”

Treasury prices surged across the board. The 10-year bond jumped by 4-2/32 points to 101 29/32, lowering its yield to 2.533%. The yield fell by nearly half a percentage point on the day — the largest single-day drop since Oct. 20, 1987, when it fell more than three quarters of a point. The yield is now at its lowest level since January 27. Yields move inversely to bond prices.

Harold Lavender, an independent broker in the Chicago Mercantile Exchange’s interest-rate pits, said that traders’ reaction there was delayed a split-second, with participants at first shrugging off a headline that scrolled across the tote board saying the Fed had left its short-term rate target unchanged, as expected.

But then Treasury prices began to jump because of electronic orders being executed, and a second headline scrolled across explaining the central bank’s expanding lending plans.

“People went nuts at that point,” said Mr. Lavender. “We began to get a lot of [Treasury] option order flow at that point, too, because people wanted to get things done through the floor.”

The dollar fell sharply against the euro and the yen and gold prices advanced by more than $23 an ounce, pushing above $940. Crude-oil futures prices moved higher in late afternoon trading on the prospect of economic improvement as a result of the Fed’s move, nudging above $49. Crude had settled lower in regular floor trading on the New York Mercantile Exchange.

The Fed’s move served as a reminder that officials still have powerful tools to combat the recession. By buying Treasurys, the central bank is increasing the amount of money in the system in a similar fashion to reducing interest rates. The move could lead to lower mortgage rates and more favorable spreads for banks. Banks will be able to borrow money more cheaply and thus lend more profitably.

“It’s basically the next best thing (to a rate cut),” said Dan Cook, senior market analyst at IG Markets.

Bank stocks shot up on the Fed’s announcement, with Wells Fargo gaining 17% and Bank of America up 22%. The S&P 500′s financial sector surged by 10%. Citigroup jumped 23% amid a short squeeze in the stock tied to an upcoming massive exchange offer for its preferred stock that will result in a huge increase in the number of Citi shares outstanding. Citi shares have tripled since early this month, when they traded around $1.

But the gains were broad-based, with nearly every sector gaining. Tech was a notable bright spot after International Business Machines was reported to be pursuing Sun Microsystems for $10 or $11 a share, a premium of about 125% to its recent share price. Sun leapt 79% and IBM declined by 1%. The Nasdaq Composite Index finished up 29.11 points, or 2%, at 1491.22.

Wednesday’s rally is the latest chapter in a strong run for the market. However, many participants are continuing to view the surge as a bear-market rally, with a selling likely to pick up as first-quarter earnings season draws closer and new economic data continue to flash signs of recession.

“The really worrisome thing is that unemployment is still high, which is bad for a consumer-based economy like ours,” said Alan Valdes, a floor trader at the New York Stock Exchange for Hilliard Lyons.

Todd Leone, head of listed trading at Cowen & Co. in New York, said that he’s on guard against increased volatility heading into Friday’s expiration of options contracts on individual stocks and major indexes. “We’re not out of the woods yet with this market, but every little bit of gain helps,” Mr. Leone said.

FOX Business:

Stocks Stay Hot on Fed Move

by Matt Egan

Wall Street cheered the Federal Reserve on Wednesday as the markets rallied for the sixth day of the last seven on hopes the central bank’s latest emergency actions will help end the nation’s economic bleeding.

Today’s Markets

The Dow Jones Industrial Average jumped 90.88 points, or 1.23%, to 7486.58, the S&P 500 added 16.23 points, or 2.09%, to 794.35 and the Nasdaq Composite Index picked up 29.11 points, or 1.99%, to 1491.22. The consumer-friendly FOX 50 added 9.64 points, or 1.65%, to 594.14.

A triple-digit dive on the Dow was erased Wednesday afternoon after the Fed ended its two-day policy meeting by saying it will buy up to $300 billion of longer-term Treasurys, its latest efforts to unlock the credit markets and spur growth. In addition to the central bank’s moves, the markets were boosted by talk of a potential merger between IBM (IBM: 91.97, -0.89, -0.96%) and Sun Microsystems (JAVA: 8.89, 3.92, 78.87%).

Wednesday’s rally adds to a hot streak that has seen the Dow surge almost 1,000 points since hitting 12-year lows earlier this month. The gains also build on a 179-point jump for the index on St. Patrick’s Day.

“People are slowly saying, ‘I don’t want to miss this.’ Nobody wants to be too late to the party,” said Frank Davis, director of sales and trading at LEK Securities. “But we need another test down to see people’s resolve. If we form a higher low, that would be a very positive sign.”

Still, market participants remain undecided about whether or not the recent gains represent the end of the selling or just a momentary reprieve.

“This spike is a little bit excessive if you ask me. You can’t go just straight up even on the bear market spikes,” said Joe Saluzzi, co-manager of trading at Themis Trading in New Jersey. “There’s still a ton of bad news. You’ve still got rising unemployment and a housing market that still hasn’t found a bottom.”

Banking giants Citigroup (C: 3.12, 0.59, 23.32%) and Bank of America (BAC: 7.62, 1.39, 22.31%) were easily the biggest percentage gainers on the Dow on Wednesday. Non-financials like General Motors (GM: 2.65, 0.18, 7.29%) and Home Depot (HD: 22.5825, 1.1125, 5.18%) rose as well, canceling out losses for Kraft (KFT: 22.27, -1.0301, -4.42%) and Alcoa (AA: 5.47, -0.12, -2.15%).

All Eyes on Fed

In a somewhat unexpected move, the Federal Open Market Committee, the Fed’s policy arm, ended its two-day meeting by saying it will buy $300 billion of long-term government bonds over the next six months in an effort to keep financing on rates linked to Treasurys low.

In another effort to boost liquidity, the Fed also said it will buy up to an additional $750 billion of mortgage-backed securities backed by Fannie Mae (FNM: 0.7999, 0.2299, 40.33%) and Freddie Mac (FRE: 0.8, 0.23, 40.35%). As expected, the central bank said it will keep interest rates at unprecedented levels. In its statement, the FOMC said it expects recent actions will “contribute to a gradual resumption of sustainable economic growth.”

While the markets popped on the Fed’s decision, some expressed concerns about a spike in inflation, which were underscored by a surge in gold prices and a plunge in the value of the dollar.

“At this point stock investors are saying they like this. But you can’t just print money without ramifications,” said Saluzzi.

Techs, Financials Jump

Banking stocks like Fifth Third Bancorp (FITB: 2.22, 0.27, 13.85%) and State Street (STT: 28.61, 3.0299, 11.84%) rose sharply Wednesday on the Fed move and positive comments from Bank of America (BAC: 7.62, 1.39, 22.31%) CEO Ken Lewis. BofA will pay back its $45 billion in TARP money later this year or early next and will be profitable in 2009 absent an “unexpected meltdown,” Lewis told the Charlotte Observer.

Thanks to enthusiasm for the potential tech merger, the Nasdaq Composite rose significantly more than the Dow. Tech heavyweights like Dell (DELL: 9.62, 0.28, 3%) and Oracle (ORCL: 15.83, 0.43, 2.79%) were sharply higher.

Shares of tech company Sun Microsystems (JAVA: 8.89, 3.92, 78.87%) surged 80% after The Wall Street Journal reported IBM (IBM: 91.97, -0.89, -0.96%) is considering buying the company. The deal, which would be the largest in IBM’s history, would reportedly value Sun at about $8 billion, or $10 to $11 per share — a premium of more than 100% from the company’s closing price Tuesday.

In the commodity markets, crude oil tumbled after the government issued a bearish inventory report that showed crude stockpiles jumped by 2 million barrels last week. Crude settled at $48.14 per barrel, down $1.02 on the day. While gold settled down $27.70 per ounce at $889.10, the commodity surged above $930 in after-hours trade following the FOMC announcement.

Corporate Movers

American International Group (AIG: 1.36, 0.41, 43.16%), which continues to come under fire for paying $165 million in bonuses in 2008, confirmed to FOX Business it is considering selling its New York City headquarters.

Coca-Cola’s (KO: 41.57, 0.18, 0.43%) $2.4 billion planned takeover of Chinese Huiyuan Juice was denied approval by the Chinese government, which said it would have been bad for competition. Coca-Cola said it will not proceed with the deal, which would have been the largest ever takeover of a Chinese company by a foreign rival.

General Mills (GIS: 47.68, -6.07, -11.29%) missed Wall Street’s expectations by reporting an adjusted-profit of 79 cents per share but boosted its 2009 earnings outlook.

Oracle (ORCL: 15.83, 0.43, 2.79%) is expected to report an adjusted-profit of 32 cents per share on $5.46 billion in sales when the tech giant releases fiscal third-quarter results after the closing bell.

Data Dump

The markets had little reaction to Wednesday’s lone economic report, which showed consumer prices rose for the second-straight month in February. The Labor Department said its consumer price index jumped 0.4% last month, matching estimates. Excluding food and energy prices, CPI rose 0.2%, twice as much as expected.

Global Markets

European stocks were mixed as Germany’s DAX jumped 0.21% to 3996.32 but London’s FTSE 100 sank 1.35% to 3804.99.

Asian markets closed higher overnight. Hong Kong’s Hang Seng jumped 1.86% to 13117.17 and Japan’s Nikkei 225 rose 0.29% to 7972.17.