Stocks rally on GM, Bear Stearns

NEW YORK (CNNMoney.com) -- Stocks rose Wednesday after General Motors and its workers' union reached a deal that ended a two-day strike - and reports said that Bear Stearns is talking with Warren Buffett and other investors about buying a stake in the company.

The Dow Jones industrial average (Charts) gained 0.7 percent, the broader S&P 500 (Charts) index rose 0.5 percent and the tech-fueled Nasdaq composite (Charts) added 0.6 percent.

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The Dow ended the session 122 points away from its all-time high above 14,000, which it hit in July.

Stocks climbed in the morning after GM and its union reached an agreement deal. Most of GM's 80 plants were back in operation by the afternoon.

GM (Charts, Fortune 500) shares jumped 9.4 percent and also lifted shares of rival Ford Motor (Charts, Fortune 500).

The GM news started the market off on a good note, and the stock advance accelerated on late-afternoon reports about Bear Stearns.

The New York Times reported on its Web site Wednesday afternoon that Bear Stearns (Charts, Fortune 500) is in serious talks with a number of outside investors about selling as much as 20 percent of the firm - adding credence to earlier market rumors.

In addition to Berkshire Hathaway's Buffett, other potential suitors mentioned included Bank of America (Charts, Fortune 500) and Wachovia (Charts, Fortune 500), the paper said.

Bear's stock surged nearly 8 percent. The stock has been battered this year as the company suffered big hedge fund losses in the wake of the financial market malaise.

Other financial stocks jumped, too. That sector strength's was important Wednesday and could be even more significant if it lasts beyond the session, said Donald Selkin, director of research at Joseph Stevens.

Financial services - one of the biggest components in the S&P 500 - has been hurt lately by the credit and mortgage market woes.

"The only significant group that hasn't been participating in the recent advance is financial," Selkin said. "If you can see the Bear news get that group going, we could take out the old highs on the Dow."

Stock gains Wednesday were broad based, with 26 out of 30 Dow issues rising. In addition to GM, other big gainers included Alcoa (Charts, Fortune 500), Walt Disney (Charts, Fortune 500) and Pfizer (Charts, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners topped losers by almost two to one on volume of 1.29 billion shares. On the Nasdaq, advancers beat decliners three to two on volume of 2.03 billion shares.

While the gains on the day were positive, "I think we are really just marking time until the September jobs report next week and the start of the quarterly earnings period after that," said Ron Kiddoo, chief investment officer at Cozad Asset Management.

Additionally, trading was also influenced by standard end-of-quarter behavior, the analysts said. In the last days of a quarter, portfolio managers typically want to buy up winners so as to close the books in as good shape as possible.

A day earlier, tech stocks surged, helping the broader market stabilize after profit warnings from Lowe's and Target triggered fears about weakening consumer demand.

Economic reports expected later in the week on personal income and spending will give a better sense of how the consumer has been holding up following the summer's financial market turmoil.

Ahead of that, the government released its August durable goods orders report on Wednesday. Orders fell 4.9 percent in the month after rising 6.1 percent in the previous month. Economists thought orders would fall to 3.5 percent, according to a Briefing.com survey.

However, investors seemed to take the weak report in stride, perhaps figuring that it adds ammunition to bets that the Federal Reserve can continue cutting interest rates.

"We're back to the 'bad news is good news' scenario, because people think it means the Fed will cut rates again," said Ron Kiddoo, chief investment officer at Cozad Asset Management.

Last week the central bank cut the fed funds rate - a key short-term interest rates that affects consumer loans - for the first time in four years, saying that the credit and mortgage market mess could threaten the economic outlook. Investors are hoping that the central bank will continue to cut interest rates.

Lower interest rates speed up the flow of money through the banking system, which is good for the economy, corporate profits and, by extension, stocks. But the risk is that too much liquidity could drive up inflationary pressures.

Oil prices rose in the afternoon, erasing morning losses. U.S. light crude oil for November delivery rose 77 cents to settle at $80.30 a barrel on the New York Mercantile Exchange.

Prices had fallen in the morning after a government report showed weekly crude supplies showed a surprise rise.

Last week, the October contract settled at a record high of $83.32. However, the record price remains below inflation-adjusted highs hit in the early 1980s, which would be equal to at least $95 a barrel today.

Treasury prices ended the session flat after bouncing throughout the day. The yield on the 10-year note stood at 4.62 percent, unchanged from late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell to another record low versus the euro before bouncing back a bit, and also gained versus the yen.

COMEX gold for December delivery fell $3.30 to settle at $735.50 an ounce.