Stocks Rebound on Renewed Bailout Hopes - TheStreet

Stocks Rebound on Renewed Bailout Hopes

The Dow and S&P finish with solid gains as lawmakers promise a rescue plan by Monday.
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Updated from 3:38 p.m. EDT

Stocks on Wall Street finished at session highs Friday as investors continued to weigh the possibility of a financial-sector bailout and the implications of

JPMorgan Chase's

(JPM) - Get Report

acquisition of

Washington Mutual

(WM) - Get Report

.

The

Dow Jones Industrial Average

, down more than 100 points at the outset, went positive and finished higher by 127.07 points, or 1.1%, at 11,143.13. The

S&P 500

also rebounded to finish up 4.09 points, or 0.3%, at 1213.27. The

Nasdaq Composite

was the weakest performer, falling 3.23 points, or 0.2%, to 2183.34.

Somewhat encouraging for the market were comments from President Bush, who said that elected officials would find common ground and arrange a rescue for the financial system. "We will rise to the occasion, where Republicans and Democrats will come together and pass a substantial rescue plan," he said.

On Thursday, the three major indices rallied sharply on the expectation that Congress would quickly pass Treasury Secretary Henry Paulson's $700 billion bailout plan to purchase troubled assets from the financials.

After Thursday's session ended, however, discussions on Capitol Hill about the

bailout

hit a rough patch as an alternative proposal by Republicans tabled efforts to pass the Paulson plan.

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News of the breakdown in negotiations coincided with word that federal regulators had seized

Washington Mutual

and arranged the sale of the assets, deposits and some liabilities of the failed bank to JPMorgan Chase.

The Office of Thrift Supervision and the Federal Deposit Insurance Corporation facilitated the deal. Shares of WaMu plummeted 90% to 16 cents.

"We saw a rally at the end of the day on anticipation that something is going to be done over the weekend," said Paul Mendelsohn, chief investment strategist with Windham Financial. "To not do something will have catastrophic effects for bank stocks come Monday. Traders have no idea if their positions and hedges will work on Monday."

Despite concerns over the fate of the rescue plan, bank stocks were the big winners of the session, propping up the Dow and S&P 500. JPMorgan Chase jumped 11% and was the Dow's best performer, while

Bank of America

(BAC) - Get Report

added 6.8% and

Citigroup

(C) - Get Report

rose 3.8%.

One laggard in the financial sector was

Wachovia

(WB) - Get Report

, which sank more that 40% during the session before regaining some of those losses after a late report by

The New York Times

that it was in early deal talks with

Citigroup

.

Despite the strong finish, the Dow still ended the week lower by 2.2%. The S&P 500 fell 3.3% over the last five sessions, and the Nasdaq lost about 4%.

For the day, roughly 5.32 billion shares changed hands on the

New York Stock Exchange

, with decliners beating advancers by a 2-to-1 margin. On the Nasdaq, nearly 2 billion shares changed hands as decliners outpaced advancers 3 to 2.

Looking at corporate earnings,

BlackBerry maker

Research In Motion

(RIMM)

reported second-quarter profit that was just short of expectations and offered tepid third-quarter guidance. The forecast sent its shares sharply lower in after-market trading.

Ahead of the final session of the week,

Jabil Circuit

(JBL) - Get Report

said its quarterly earnings rose, while

KB Home

(KBH) - Get Report

posted a loss.

Turning to economic data, the Bureau of Economic Analysis released its final reading on second-quarter gross domestic product, downwardly revising the figure to show growth of 2.8% from April to June. The preliminary number had been 3.3%.

Meanwhile, the

Federal Reserve

said it has extended the agreements already in place with other central banks to further boost the liquidity of the money markets. Policymakers said they have authorized a $10 billion increase in the Fed's temporary swap facility with the European Central Bank and a $3 billion boost in its line with the Swiss National Bank. In total, the changes add $13 billion to the existing $277 billion in temporary reciprocal currency arrangements with other central banks.

Over in commodities, the price of crude oil was down $1.13 to $106.89 a barrel. Gold rose $6.50 to $888.50 an ounce.

Longer-dated U.S. Treasury securities were rising in price. The 10-year was up 4/32, yielding 3.84%, and the 30-year was adding 26/32 to yield 4.36%. The dollar was lower vs. the yen and pound but gaining on the euro.

Overseas exchanges were broadly weaker. The FTSE in London and the DAX in Frankfurt were edging downward, and the Nikkei in Japan and the Hang Seng in Hong Kong finished with losses.

This article was written by a staff member of TheStreet.com.