Stock On Wall Street Manages To Turn Around

Efforts of The Global Central Banks Helped To Soothe Wall Street

Stocks on Wall Street got off to a positive start as central banks attempted to calm concerns in the banking system by infusing billions of dollars into the global financial system. The advance was countered with selling pressure that turned an early 2% Dow advance into a 1.4% midday loss. However, the combined influence of an announcement prohibiting short selling in the U.K. and reports Treasury is considering a plan to create a Resolution Trust-like operation as a solution to the financial crisis stimulated huge buying interest late in the day. The Dow finished with a 3.9% gain, near its session high.

The major averages moved sharply higher in the final hour of trading, ended the day just off of their session highs. The Dow closed up 410.03 points or 3.9 percent at 11,019.69, the Nasdaq closed up 100.25 points or 4.8 percent at 2,199.10 and the S&P 500 closed up 50.12 points or 4.3 percent at 1,206.51.

Sector wise, all ten of the economic sectors advancing as the U.S. Federal Reserve along with five other central banks in Europe enacted plans to deal with the elevated pressures in U.S. dollar short-term funding markets. Among the efforts, the Fed provided an extra $180 billion to the other central banks involved via its temporary reciprocal currency arrangements or swap lines, valid through January 30, 2009. This increased capacity is intended to provide dollar funding for both term and overnight liquidity operations by the other central banks.

While the efforts of the global central banks helped to soothe Wall Street, investors continued to worry over the health of the financials. Following yesterday’s $85 Federal million loan to AIG along with Lehman Brothers’ announcement that it is seeking bankruptcy protection and Bank of America’s plan to acquire Merrill Lynch, some investors are wondering who will be next.

Washington Mutual and Morgan Stanley have both come under extreme pressure as of late amid continued credit worries. Media reports have tied both companies to potential mergers - Washington Mutual to Citigroup or Wells Fargo and Morgan Stanley to Wachovia.

Fueling the speculation with Washington Mutual, a major investor waived a provision of its agreement that would have required a potential buyer or other major investor to pay the firm hundreds of millions of dollars in addition to whatever money was injected into Washington Mutual.

Consolidation is also taking place overseas. U.K. banking giant Lloyds TSB Group announced it is acquiring struggling U.K. mortgage lender HBOS in an all-stock deal valued at roughly $22.2 billion. The U.K. government brokered the deal, and is overriding anti-monopoly regulations, according to reports.

The financial sector was able to garner favor as word that the Financial Services Authority, the United Kingdom's independent financial regulator, issued a temporary ban on short selling financial companies. Meanwhile, the New York Attorney General said he wants to freeze short selling in financial stocks, according to Dow Jones.

The sector was helped even more after reports surfaced that Treasury Secretary Paulson is talking about a Resolution Trust Corporation-type solution that would help end the current crisis.

Financials were down 6.2% at their low, but closed with a gain of 11.7%. Still, the heavy losses incurred earlier in the week have the sector looking at a 5.7% week-to-date decline.

The significance of the Fed's actions and developments from the financial sector caused participants to generally overlook most other happenings.

Meanwhile, there were several economic reports released earlier in the day. Among the various reports, the Federal Reserve Bank of Philadelphia released its report on activity in the Philadelphia-area manufacturing sector. In the report, the Philly Fed said that the sector unexpectedly expanded in the month of September, with the Philly Fed Index climbing into positive territory. The Philly Fed said its index of current activity rose to a positive 3.8 in September from a negative 12.7 in August, with a positive reading indicating growth in the sector. Economists had expected the index to come in at a negative 10.0.

In another economic release, initial jobless claims for the week ended 13 September increased 10,000 to 455,000 while the four-week moving average bumped up to 445,000 from 440,000. The weekly figure was above the consensus estimate of 440,000. The four-week moving average sits roughly where it did in mid-August, but still reflects a soft labor market.

Tracking the index in detail, the Dow components ended the session with substantial gains, after showing a lack of direction throughout most of the day pushing the blue chip index sharply higher. With the rally, none of the Dow components ended the day on the downside.

Citigroup was one of the biggest gainers on the Dow, boosted by the strength seen in the financial sector. Shares of the financial services giant closed up 18.7%, reversing some of its recent losses. With the gain, the stock climbed off of an eleven-year closing low set in the previous session. Earlier in the day, Citigroup announced that it is appointing Mark Shafir as head of its Global Mergers and Acquisitions department.

Other financial stocks within the Dow saw substantial gains as well, including Bank of America, JP Morgan Chase and American Express. Bank of America closed up 12.4 %, JP Morgan Chase closed up 12.7% and American Express closed up 14.2%.

AIG also showed considerable strength, up 31.2%. Shares of the insurer have been in free fall for the past two weeks amid concerns over its liquidity. Late Tuesday, the Federal Reserve announced that it would issue AIG a 24-month emergency loan for $85 million.

Earlier in the day, the Dow announced that Kraft Foods would replace AIG in the Dow Jones Industrial Average, effective with the opening of trading on 22 September 2008. Kraft posted a 3.3% gain.

General Motors saw significant buying interest as well. Shares of the automaker closed 14.8 percent higher, reversing losses posted in the previous two sessions. On Wednesday, the stock set a monthly closing low.

General Electric, Home Depot and Pfizer also ended the session notably higher. General Electric closed up 7.4%, compared to a 5.2% gain by Home Depot. Pfizer ended the day 4.8% higher.

In other regional markets, the stock markets across the Asian region closed mostly lower after Wall Street plunged overnight. Japan’s Nikkei 225 average closed down 2.2%, well off of its worst level of the session. The benchmark Shanghai Composite Index closed down 33.21 points or 1.72% at 1,895.84, recovering substantially from the day's low of 1,802.33. The Australian S&P/ASX 200 index gave away 114.9 points to end at 4,607.3, its lowest close since December 2005.

Meanwhile, the major European averages ended the day mixed after seeing earlier strength. The German DAX Index closed slightly higher, while the French CAC 40 Index closed down 1.1% and the U.K’s FTSE 100 Index ended the day 0.7% lower.