US stocks rose on Thursday after a published report about potential suitors, including Bank of America, for Lehman Brothers, giving investors some reassurance at the end of a choppy session. The report boosted a number of bank stocks, but failed to lift Lehman Brothers, which fell almost 42 percent on the session. The DJIA closed 164.8 points higher at 11433.71, the Nasdaq added 29.52 points to finish at 2258.22 and the S&P500 closed 17.01 points higher at 1249.05.
Stocks were mostly lower through the morning as Lehman and other banks stocks tumbled on worries about their solvency. Meanwhile, a steeper than expected jump in the US trade deficit and a weak jobless claims report added to recession fears. While banks shares remained under pressure in the afternoon, the selloff in oil prices gave a lift to companies that benefit directly from lower fuel prices, including transportation stocks. Consumer stocks benefitted too, on lower inflation expectations. But the market rallied heading into the close after the Wall Street Journal site reported that Lehman Brothers is actively shopping itself to potential acquirers, including Bank of America. In a statement, Bank of America declined comment on the report. Investors also reacted to oil prices, which closed at a 5 1/2 month low.
Lehman Brothers fell 45 percent after having recovered some of those losses at midday. The bank reported on Wednesday a nearly $14bn fiscal third quarter loss, its biggest quarterly loss since it went public in 1994. Lehman also said it will spinoff part of its commercial real estate business, cut its dividend and sell a 55 percent stake in its investment unit, which includes profitable money manager Neuberger Berman. On Thursday, investors wondered it the restructuring moves were sufficient to keep the firm afloat. Goldman Sachs downgraded the stock to neutral from buy, while Citigroup cut it to hold from buy.
AIG initially fell to a more than 13 year low before recovering following reports that the CEO may consider selling the consumer finance and reinsurance units to raised money.
In economic news, in addition to the banking system woes, investors received the two discouraging economic reports Thursday, on the trade deficit and the labour market. The US trade gap surged to $62.2bn in July, its widest level in 16 months. Oil prices were the main reason for the increase. The report beat economists forecasts for a dip to $58bn versus a revised $58.8bn in June. The number of Americans filing new claims for unemployment fell 6000 to 445,000 last week, beating forecasts for a bigger drop to 440,000, the government reported.
US light crude for October delivery settled down $1.71 at $100.87 a barrel on NYMEX, the lowest close since March 24.
Treasury prices gained, lowering the yield on the 10 year note to 3.61 percent to 3.63 percent.
The dollar rose versus the euro and slumped against the yen.
COMEX gold for December delivery fell $14 to $748.50 an ounce.
The Nikkei rose on Friday, with financial stocks such as Mitsubishi UFJ Financial Group gaining sharply following news that US investment bank Lehman Brothers was in talks about a possible sale. The market went through a roller-coaster rise ahead of a three day weekend, dipping into negative territory briefly as investors hurried to lock in profits amid uncertainty over the US financial sector and the global economic outlook. The Nikkei closed 112.26 points higher at 12214.76.
UK stocks fell for the third day in a row on Thursday, down 0.9 percent as ongoing credit worries hit banks and Morrison Supermarkets eased after half year results. The FTSE100 closed 47.8 points lower at 5318.4, but well ahead of its days low of 5258.1 after crude prices fell below $101 a barrel.
Investors avoided the financial sector after Lehman Brothers failed to announce on Wednesday any concrete deals to raised desperately needed capital. Lehman shares fell another 30 percent on Thursday. HSBC, Barclays, RBS, HBOS and Lloyds TSB fell between 2.1 and 4.3 percent.
Retailers also suffered, with Morrison falling 6.1 percent after the company's in line first half results failed to inspire. Home Retail fell 5.7 percent after the company posted worse than expected second quarter results at both its businesses, Argos and Homebase. A ratings downgrade from Berstein weighed on Kingfisher which closed 5.4 percent lower. Also, John Lewis posted a 27 percent drop in first half profit and said it was cautious about the outlook for the rest of this year and 2009. Sainsbury fell nearly 6 percent, Tesco lost 1.9 percent and Marks and Spencer closed 3.1 percent lower.
Bank of England Governor Mervyn King, however, appeared in no hurry to cut interest rates, despite mounting evidence the British economy is on the verge of its first recession since the early 1990s.
BG Group added 4.3 percent after the company said that after drilling at the Iara oil field in Brazil it now estimated the field contain 3-4bn barrels of recoverable reserves, confirming earlier comments by Petrobras. Traders also cited underlying speculative interest helping BG Group following its decision to abandon a takeover bid for Australia's Origin.
Mining stocks also lent some support, with Xstrata, Kazakhmys, Antofagasta, BHP Billiton and Anglo American adding between 1.2 and 5.2 percent. Ferrexpo gained 0.8 percent.
ITV gained 2.3 percent, extending this weeks rally as takeover hopes continued to swirl around the company.
AstraZeneca fell 2.9 percent after Goldman Sachs downgraded the stock to sell arguing the company's fundamentals remained difficult despite better than expected patent news this year. GlaxoSmithkline was 2 percent lower.