Stocks soar into the weekend

Wall Street rallies, with the Dow spiking 230 points as Fed discount-rate cut soothes credit market worries. Yet investor fears persist.

By Jessica Dickler and David Ellis, CNNMoney.com staff writers

NEW YORK (CNNMoney.com) -- Stocks surged Friday after the central bank cut its mostly symbolic discount rate, easing worries about the credit and mortgage markets that have roiled Wall Street for weeks.

The Dow Jones industrial average (up 233.30 to 13,079.08, Charts) jumped 233 points, or 1.8 percent, after soaring more than 300 points earlier in the session. The tech-fueled Nasdaq composite (up 53.96 to 2,505.03, Charts) index rose 2.2 percent. Both the Dow and Nasdaq snapped 6-session losing streaks.

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The broader S&P 500 (up 34.67 to 1,445.94, Charts) index climbed nearly 2.5 percent, clawing back into positive territory for the year.

The gains were broad based, with 25 out of 30 Dow components rising. Banks, energy, steel, retailers, telecom and technology led the charge.

However, early-week losses left the markets lower for the week, with the Dow down 1.7 percent, the S&P 500 down nearly 1 percent and the Nasdaq down 1.9 percent.

Stocks got pummeled in the first three days of the week and looked like they were heading for another battering Thursday. But investors staged an impressive comeback, with the Dow bouncing back from a 342-point loss to end that session down by just 15 points. That recovery extended to Friday's session, thanks to the move by the Fed.

Although it did not cut the more widely-watched fed funds rate, which affects consumer loans, the central bank did cut the discount rate, which impacts banks and other lenders. The Fed cut the discount rate by a half-percentage point to 5.75 percent, taking Wall Street by surprise and raising bets that it will cut the fed funds rate at the Sept. 18 policy meeting.

"A sense of calm has come over investors, supported by the actions of the Fed," said Art Hogan, chief market strategist at Jefferies & Co.

The move, while largely symbolic, was an attempt by the central bank to "promote the restoration of orderly conditions in financial markets," the Fed said in a statement.

It did the trick, at least on Friday, cooling investor jitters after a period of great uncertainty about how the subprime mortgage and credit market problems will hit the broader economy.

Although the problems in those markets remain, "just knowing that the Fed is ready to assist is reassuring," Hogan said.

Whether that translates to further stock gains remains to be seen.

"We'll have to wait and see how the market reacts to the next piece of negative news," Hogan said, referring to ongoing troubles with risky U.S. mortgages and the credit market.

Next week is light on market-moving economic news, highlighted by the July leading economic indicators report, due Monday, and July readings on durable goods orders and new home sales, expected Friday.

On the corporate front, earnings are due from home improvement retailer Lowe's (up $0.06 to $26.87, Charts, Fortune 500) on Monday and Staples (down $0.02 to $23.25, Charts, Fortune 500), Target (up $1.43 to $61.18, Charts, Fortune 500) and other retailers later in the week.

Investors will also be looking to see if the Fed infuses more money into the U.S. banking system, as it has been doing lately.

Among stock movers, financial stocks especially benefited from the Fed's move.

Merrill Lynch (up $4.91 to $76.04, Charts, Fortune 500), Goldman Sachs (up $5.15 to $175.00, Charts, Fortune 500) and J.P. Morgan Chase (up $1.54 to $47.01, Charts, Fortune 500) were among the stocks rising. The AMEX Securities Broker/Dealer index (up $8.63 to $221.90, Charts) gained 4 percent.

Even the troubled mortgage lender Countrywide Financial (up $2.48 to $21.43, Charts, Fortune 500) rebounded nicely from Thursday's losses on the news, climbing 13 percent.

Shares of oil majors including Exxon Mobil (up $3.47 to $84.14, Charts, Fortune 500), BP (up $1.58 to $64.58, Charts) and Chevron (up $2.97 to $84.36, Charts, Fortune 500) all jumped on higher crude prices, which were supported by the Fed's move and the growing strength of Hurricane Dean.

U.S. light, sweet crude oil for September delivery rose 98 cents to settle at $71.98 a barrel on the New York Mercantile Exchange.

In other news, Dow component Hewlett-Packard (up $1.10 to $47.15, Charts, Fortune 500) reported better-than-expected earnings and issued a stronger-than-forecast outlook late Thursday, sending its shares higher.

Organic grocer Wild Oats Markets (up $2.71 to $17.92, Charts) soared nearly 18 percent after a bid by federal antitrust regulators to temporarily block its purchase by rival Whole Foods Market (up $3.13 to $44.30, Charts, Fortune 500) was rejected by a federal judge. The FTC filed an appeal on the decision, which was again rejected.

In deals news, Midwest Express (up $0.85 to $15.55, Charts) accepted a raised $17-a-share offer from a group led by private equity firm TPG Capital and Northwest Airlines (up $0.18 to $16.16, Charts, Fortune 500), ending the hostile bid for the company by rival AirTran Holdings.

Market breadth was positive. Winners beat losers on the New York Stock Exchange by 6 to 1 on volume of 2.5 billion shares. Advancers topped decliners by 3 to 1 on volume of 2.7 billion shares.

In global trading, European markets finished sharply higher after the Fed discount rate cut. Mexican and Canadian markets were also higher. But Asian markets tumbled Friday, with Japan's Nikkei index skidding 5 percent, posting its worst day since the Sept. 11 attacks.

In economic news, consumer sentiment fell more than expected in August, according to a survey published Friday by the University of Michigan.

Treasury prices were modestly higher, with the yield on the benchmark note at 4.67 percent, down from 4.69 percent late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar slumped versus the euro and the yen on bets that a potential Federal Reserve interest rate cut would cut the greenback's advantage versus other lower-interest currencies.

COMEX gold for December jumped $8.80 to settle at $666.80 an ounce. Top of page

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.