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Stocks jump on prospect of Lehman buyout

Stocks jump on prospect of Lehman buyout

Stocks jumped Friday as oil retreated from this week's rally and as speculation grew that Lehman Brothers Holdings Inc. could be sold.
Worries about the embattled Lehman re-emerged this week as analysts lowered their estimates for the investment bank and forecast large additional write-downs. However, a Ladenburg Thalmann analyst upgrade on Lehman to "buy" helped stocks finish mixed on Thursday; he said he believed Lehman has become a hostile takeover candidate.
And on Friday, after the previous day's media reports that discussions between Lehman and a group of Korean banks had fallen through, another report emerged that Korea Development Bank is considering buying the company. Lehman rose $1.37, or 10 percent, to $15.09.
Investors appeared cheered by an inflation forecast from Federal Reserve Chairman Ben Bernanke who said at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming, that inflation pressures should moderate this year amid tepid economic growth. But he also added that the inflation forecast remains "highly uncertain."
John Massey, senior portfolio manager at AIG SunAmerica Asset Management, said investors are encouraged by Bernanke's hints that he's not likely to soon raise interest rates and by the possibility of a buyer for Lehman.
"We're seeing the potential for maybe another white knight," he said, referring to prospects of a deal to acquire all or part of the investment bank.
In midday trading, the Dow rose 138.17, or 1.21 percent, to 11,568.38 after being up more than 200 points.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 9.94, or 0.78 percent, to 1,287.66, and the Nasdaq composite index rose 22.85, or 0.96 percent, to 2,403.23.
Light, sweet crude fell $2.51 to $118.67 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.
Bond prices pulled back as investors rushed from the safety of government debt to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.88 percent from 3.83 percent late Wednesday.
The dollar rose against other major currencies, while gold prices fell.
Massey cautioned against making too much of the market's moves given the light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost more than 300 points over Monday and Tuesday before ending moderately higher Wednesday and finishing mixed Thursday.
"The light volumes are really sort of the reasons behind why you've got some outsize moves. I think the issues over all for the economy and the market are fairly well understood," he said. "The market is of this mind-set that we're going to continue to be flattish to down."
He doesn't expect the stock market to more accurately reflect investor sentiment until after Labor Day, when trading volumes should pick up. Until then, he'll be looking next week at readings on consumer confidence and unemployment to determine where the economy might be headed.
Remarks Friday from Bernanke and investor Warren Buffett appeared to dim Wall Street's hopes that mortgage financiers Fannie Mae and Freddie Mac might be able to get by without a government bailout. While such a move could help prop up the government-chartered companies, which together hold or back nearly half the nation's mortgage debt, it could also wipe out shareholder equity.
While Bernanke didn't mention them by name he said he said one of the critical questions facing the country is how to strengthen the financial system and guard against the "moral hazard" of companies making risky choices thinking that the government will ultimately offer a safety net.
Buffett said on CNBC that Fannie and Freddie are too big to fail but that shareholder equity in those companies can be lost.
Fannie Mae fell 44 cents, or 9.1 percent, to $4.41, while Freddie Mac fell 62 cents, or 20 percent, to $2.54.
While most sectors gained ground Friday, some materials companies pulled back as commodity prices fell. United States Steel Corp. fell $5.06, or 3.6 percent, to $134.14, while miner Freeport-McMoRan Copper & Gold Inc. declined $1.54 to $92.12.
In corporate news, Gap Inc. rose 99 cents, or 5.2 percent, to $20 after reporting late Thursday that profits in the most recent quarter rose 51 percent from a year earlier, thanks to tight inventory and cost control. The results were better than expected.
King Pharmaceuticals Inc. said it is prepared to take its bid for Alpharma Inc. directly to shareholders after the company rejected King's $1.4 billion buyout overture. King disclosed the $33 a share offer publicly for the first time Friday. Alpharma surged $10.17, or 42 percent, to $34.21, while King rose 78 cents, or 6.9 percent, to $12.02.


Updated : 2021-04-21 01:51 GMT+08:00