Stocks jump on falling oil, inflation forecast
NEW YORK - Wall Street ended sharply higher Friday following a plunge in oil prices and a prediction from Federal Reserve Chairman Ben Bernanke that inflation is likely to moderate this year.
Speculation Friday that Lehman Brothers Holdings Inc. could be sold has helped buoy the financial sector and the overall market.
Meanwhile, light, sweet crude plunged $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.
The Dow Jones industrial average is ending up 196 at the 11,627 level.
Investors also appeared cheered by an inflation forecast from Bernanke who said at the Kansas City Fed's annual economic symposium 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 comments on 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.
The health of the financial sector and rising inflation are two of the market's greatest concerns. Although Bernanke refrained from making predictions about inflation, the market was mollified when light, sweet crude plunged $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.
In late afternoon trading, the Dow rose 176.77, or 1.55 percent, to 11,606.98 after being up more than 200 points.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 11.40, or 0.89 percent, to 1,289.12, and the Nasdaq composite index rose 31.13, or 1.31 percent, to 2,411.51.
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.
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.