Stocks Rise on Lehman Buyout Hopes

Sector indices were bolstered by the news, led by gains of at least 2% in the KBW Bank index and the Amex Securities Broker/Dealer index. The NYSE Financial Sector index was better by 1.4%.

Meanwhile, Federal Reserve Chairman Ben Bernanke, spoke at Jackson Hole, Wyo., about the credit crunch. Bernanke said that although the markets have improved somewhat, the crisis is not over and is now manifest in a slowing economy and increasing unemployment.

" In the format from which he was speaking, you don't get any groundbreaking news," said Hogan. But today was different, he said. "For the first time, we got to hear Bernanke say inflation will ease."

Hogan said that Bernanke's view on inflation surprised the market, but the rise in equities was disproportionate to the news. He cited low trading volume as reason for the exaggerated response.

On Thursday, blue-chip stocks showed modest gains while tech stocks fell, as the dollar took a pummeling and the price of crude oil spiked by more than $5. The financial sector remained a point of concern after Citigroup lowered earnings estimates on several key firms.

During the new session, oil was down $2.88 to $118.30 a barrel, and the dollar was rallying against its major foreign competitors.

U.S. Treasury prices were declining. The 10-year was down 12/32, yielding 3.87%, and the 30-year was losing 14/32 in price to yield 4.49%. Gold was shedding $8.80 at $830.20 an ounce.

As for corporate news, The Wall Street Journal reported that aircraft maker Boeing (BA Quote) may end its effort to secure a $40 billion air tanker project from the Air Force if the government gives it six months to issue a new proposal. Boeing had previously challenged the Air Force's decision to award the contract to Airbus parent EADS and Northrop Grumman (NOC Quote).