US stocks were volatile on Friday as investors faced uncertainty about whether Lehman Brothers and Washington Mutual are likely to find buyers, and whether AIG will shed its sour mortgage related assets. The broad financial sector problems were countered by strength in oil services and other commodity stocks and the automakers. Oil prices seesawed to a higher close as Hurricane Ike headed towards the Texas Gulf Coast. The DJIA closed 11.72 points lower at 11421.99, the Nasdaq added 3.05 points to finish at 2261.27 and the S&P500 closed 2.65 points higher at 1251.70.
Lehman Brothers slipped 13.5 percent, building on Thursdays 42 percent decline as reports that it is actively looking for a buyer vied with hints that the government's help will be more limited than it was when Bear Stearns almost collapsed in March. Treasury Secretary Henry Paulson reportedly does not want to use federal money to help with the sale, as he thinks the situation is different than the one with Bear Stearns.
AIG slumped almost 31 percent as investors worried about its bad mortgage bets and ability to raise capital. That prompted S&P to put AIG's rating on CreditWatch with negative implications, after the close of trade. Following that, reports surfaced that AIG has hired JP Morgan to help it figure out how to raise money, with a deal expected to be announced over the weekend. AIG is holding a conference call Monday. The stock fell 3 percent in after hours trading.
Washington Mutual shares were volatile after reports surfaced that Bank of America will make a play for it. Late Thursday, the company issued a statement that sought to reassure investors about its financial well being. Additionally, a report in American Banker Friday afternoon said that JPMorgan is in advanced talks to buy Washington Mutual. The stock rose 15 percent on the report, before erasing those gains and closing lower. JPMorgan shares fell 1.2 percent.
General Electric fell 5 percent on worries about whether it will be able to sell its private label credit card business.
A number of energy, metal and utility stocks bounced, with those sectors recovering after having declined in recent weeks. Alcoa, Chevron, DuPont and Exxon Mobil all gained.
General Motors and Ford Motor continued to gain on optimism about federal loans for the troubled automakers.
Wal-Mart Stores and Home Depot slid on the morning's surprisingly weak retail sales report.
The week ahead brings quarterly results from Goldman Sachs and Morgan Stanley among others.
In economic news, Retail sales dropped 0.3 percent in August, surprising economists who were expecting sales to rise 0.3 percent after falling a revised 0.5 percent in July. Sales excluding volatile autos fell 0.7 percent.
A reading on wholesale inflation was more positive. The PPI index fell 0.9 percent in August after rising 1.2 percent in July. Economists thought PPI would fall 0.5 percent on average. The so called core PPI rose 0.2 percent in line with estimates.
The University of Michigan's initial reading on September consumer confidence rose to 73.1 from 63 in late August, reflecting the impact of falling commodity prices. Economists thought it would rise to 64. Another report showed a bigger than expected rise in July business inventories, a gain of 1.1 percent versus forecasts for a rise of 0.5 percent. Inventories rose a revised 0.8 percent in the previous month.
US light crude for October delivery fell 65 cents to $100.22 a barrel, briefly touching below $100, after ending the previous session at the lowest close since March 24.
Treasury prices tumbled, raising the yield on the 10 year note to 3.72 percent from 3.64 percent.
The dollar fell versus the euro and rose against the yen.
COMEX gold for December delivery rose $19 to $864.50 an ounce.
Japanese market are closed today for a national holiday.
UK stocks rose on Friday, buoyed by resource and travel sector gains, while banks were robust even as the fate of Lehman Brothers remained uncertain. The FTSE100 closed 98.3 points higher at 5416.7.
BP and Shell both added 1.6 percent as US crude prices recovered to above $101 a barrel and the markets kept a watchful eye on the path of Hurricane Ike.
Miners were the biggest gainers as gold rose nearly 2 percent, with Eurasian Natural Resources, Xstrata, Anglo American, Kazakhmys and BHP Billiton up between 7.3 percent and 9.1 percent. However, these gains offset only some of the heavy losses in the sector since the start of the month.
Sentiment remained fragile, as hopes that Lehman's fate would soon be settled evaporated on mounting concerns the bank may not arrange a US government backed takeover, which sent it shares tumbling to a near 14 year low. Barclays gained 3.6 percent, shrugging aside the talk it could be involved in a rescue for Lehman, while Lloyds TSB, RBS and Standard Chartered all added between 1.1 percent and 2.3 percent.
TUI Travel and Thomas Cook added 7.3 percent and 6.7 percent respectively after the collapse of Britain's third largest tour operator, XL Leisure, reduced competition in the sector.
Retailers also ended the week higher after disappointing trading news and results early in the week, with Morrison Supermarkets gaining 2.3 percent and Kingfisher up 0.5 percent. Sainsbury gained 5.7 percent as traders cited market talk of bid interest in the supermarket group, though the company declined to comment.
Wolseley was the worst FTSE100 performer, down 4.5 percent after Citigroup cut its rating for the stock to sell from hold leaving its target unchanged at 310 pence.
The pharmaceuticals sector was the biggest weighted loser, with GlaxoSmithkline down 1.4 percent and AstraZeneca down 0.4 percent as investors switched out of defensive stocks.
Economics
US Empire manufacturing (Sept) 13.30 bst
Empire manufacturing rose to 2.8 in August, up from -4.9. New orders, and shipments were close to breakeven at -2.2 and -0.9, respectively. ISM manufacturing has also been very stable at around 50 so far this year, consistent with flat overall activity. Empire manufacturing is expected to be at 2 for September.
US Industrial production (Aug) 14.15 bst
Industrial production is expected to fall 0.3 percent in August. Aggregate manufacturing hours fell 0.9 percent in August, including a sharp 9.6 percent drop in motor vehicle production hours. Lower auto output should be partially offset by increases in printing and machinery. Capacity utilization should fall to 79.6 percent from 79.9 percent.
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