US stocks surged on Tuesday with falling oil prices and a stronger dollar giving investors an incentive to scoop up financial services and other shares hit in the recent selloff. The DJIA closed 152.5 points higher at 11384.21, the S&P500 rose 21.39 points to close at 1273.70 and the Nasdaq added 51.12 points to close at 2294.44.
The major gauges seesawed in the morning on a weak housing report, earnings jitters and more questions about the financial sector. But news that the Federal Reserve may give banks more time to access emergency funds got stocks moving higher. Separately, Richmond Fed President Jeffrey Lacker, speaking in the afternoon, said that downside risks to economic growth have diminished and that growth will pick up next year.
Investors also responded to a more than $5 a barrel plunge in the price of oil. The decline helped spark a broader stock turnaround late in the session.
US light crude for August delivery fell $5.33 to close at $136.04 a barrel on NYMEX, reaching the lowest level in nearly two weeks. Oil prices extended a post July 4th descent Tuesday, falling more than $9 a barrel over two days, as Iran's President downplayed concerns about possible war in the Middle East and investors anticipated falling demand due to high gasoline prices. The price of light sweet crude for August delivery fell $5.33 to close at $136.04 a barrel on NYMEX. It was the lowest level in nearly two years, and followed a drop of $3.92 Monday.
Concerns over supply disruptions in the Middle East eased after Iranian president Mahmoud Ahmadinejad said he did not believe there would be an armed conflict between Iran and Israel or the US. At a summit of Muslim nations in Malaysia on Tuesday, Ahmadinejad said he believed the US and Israel have been using propaganda and psychology against Iran, but that he did not see war in the future, the Associated Press reported.
Investors were concerned that a government report scheduled for release today may indicated there was lower demand for fuel over the Fourth of July weekend. The government's petroleum inventory report is expected to show an increase in gasoline stocks, which are normally flat or lower over the holiday.
The national average price for a gallon of regular unleaded gas held steady at a record $4.108 for a second day.
Merrill Lynch rose as investors shrugged off a Wachovia note that said the bank could face more writedowns related to bad mortgage debt and may also need to raise more capital. Ambac Financial soared 50 percent after the company said it has enough liquidity to meet its commitments going forward.
IndyMac Bancorp fell 44 percent after saying late Monday that it has stopped taking new loan submissions in its main lending business and plans to cut 3,800 jobs to raise capital.
VMWare cut its sales forecast and said it was replacing its CEO, sending the stock 27 percent lower.
In economic news, the number of homes under contract to be sold in May fell 4.7 percent, according to a real estate trade group. The decline topped forecasts and followed an unexpected rise in sales in the previous month.
Treasury prices rose, lowering the yield on the 10 year note to 3.87 percent from 3.9 percent late Monday.
In currency trading, the dollar rose versus the euro and the yen.
COMEX gold for August delivery fell $7.70 to $921.10 an ounce.
The Nikkei average pared much of its earlier gains to close up 0.2 percent today after a report that Iran had test fired missiles, raising fears about a jump in oil prices on heightened tensions in the region. The stock market sharply rose in the morning, led by financial shares such as Mitsubishi UFJ Financial Group, after comments from the US Federal Reserve helped ease credit worries. But the missile test news, which came in the afternoon, prompted many investors to lock in profits, with the Nikkei hovering near the previous day's close in the last half hour of trading. The Nikkei average ended 19.03 points higher at 13052.13, after rising to 13284.65.
UK stocks closed lower on Tuesday, driven lower by sharp falls in heavyweight commodity stocks that tracked crude and metal prices lower, while banks continued to struggle. The FTSE100 closed 72.2 points lower at 5440.5, after gaining 1.9 percent on Monday. Mining stocks slipped with a decline in key base metals prices, and oil stocks fell sharply after crude prices slid nearly 4 percent. BP lost 3.4 percent, Royal Dutch Shell dropped 2.3 percent and BG Group lost 4.4 percent.
The banking sector remained in the red. Barclays, RBS, HSBC, HBOS and Lloyds TSB lost between 1 and 2.8 percent. Analysts feared the UK economy could slide into a recession, with the British Chamber of Commerce saying that unemployment could rise by as much as 300,000 by the end of 2009.
Latest economic figures also painted a grim picture for the US economy. Data showed that pending sales of previously owned US home plummeted 4.7 percent in May, against economists expectations of a 2.8 percent fall. And Barclays unit Firstplus, a provider of homeowner loans, planned to stop lending to new customers next month due to slowing demand.
Credit worries resurfaced on Monday after a Lehman Brothers report said a pending accounting change could force Fannie Mae and Freddie Mac to raise a combined $75bn in capital. But US Federal Chairman Ben Bernanke said Tuesday that the central bank may extend emergency lending for big Wall Street investment banks, easing worries about the financial services sector.
Miners were the biggest losers on the FTSE100. BHP Billiton, Rio Tinto, Anglo American, Xstrata, Vedanta Resources and Eurasian Natural Resources fell between 3.5 and 6.8 percent.
With pressure growing on Britain's regulators and the broader banking sector to avoid a repeat of the collapse of Northern Rock last year, sources said six clearing banks had agreed to back Bradford and Bingley's underwriters. Bradford and Bingley was 19 percent lower at 34 pence, below its planned rights issue price of 55 pence, after hitting record lows.
Marks and Spencer bounced from a 7 1/2 year low on speculation the company might become a bid target, although Philip Green denied market talk he was buying a stake. The stock closed 6.7 percent higher.