Stocks jump as oil slumps
Dow jumps nearly 200 points at the end of a tough week - helped by lower oil prices, a stronger dollar, hope for Lehman Brothers and Bernanke's comments.
NEW YORK (CNNMoney.com) -- Stocks surged Friday, at the end of a tough week, as investors welcomed lower oil prices, a stronger dollar, a rebound in bank shares and comments from Fed Chairman Ben Bernanke that cooled some inflationary worries.
The Dow Jones industrial average (INDU) gained almost 200 points, or 1.7%. The broader Standard & Poor's 500 (SPX) index added 1.1%, and the Nasdaq composite (COMP) gained 1.4%.
Oil prices retreated Friday morning as the dollar strengthened. Meanwhile, optimism that Lehman Brothers could be a takeover candidate gave the financial sector a lift.
"Yesterday there was an upgrade of Lehman, and today there's news that there may be a suitor there," said John Wilson, chief technical strategist at Morgan Keegan.
He said these developments were especially important for the market psychology because it reminds investors that there's still value in financials, despite the more-than-yearlong mortgage market meltdown.
"What everyone is looking for is that we've seen the worst in financials," Wilson said. "If you can grasp that straw of hope, you can extrapolate that maybe an end is getting nearer."
Investors also responded to a morning speech from Federal Reserve Chairman Ben Bernanke at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyo.
Bernanke reiterated that ongoing problems in the financial sector are dragging on the economy. However, he also said the recent retreat in oil prices, in combination with the stronger dollar and the weaker economy, are helping to keep inflation in check.
Oil has tumbled since peaking at $147.27 per barrel on July 11.
Bernanke's comments about inflation seemed to signal to investors that the central bank will not need to raise interest rates in the near term to counter pricing pressure. This was a relief amid worries about how higher rates would hurt the already-bruised economy.
Earlier in the session, Berkshire Hathaway (BRK.A)'s Warren Buffett said the economy is still in a recession, according to his definition, and that it will remain in one for several more months. However, he also said he's not betting against the dollar, and that stocks are more attractive than they were a year ago.
Fuel prices: Oil prices slumped Friday, erasing the previous day's rally, in response to the stronger dollar and bets that global energy demand will decline along with a broad economic slowdown.
U.S. light crude oil for October delivery fell $6.59 to settle at $114.59 per barrel on the New York Mercantile Exchange, posting its biggest 1-day slide in dollars since 1991. On a percentage basis, however, the drop of 5.4% was less meaningful. (Full story.)
The slide in oil was in response to a rally in the dollar versus the yen and euro. A stronger dollar makes dollar-traded commodities like oil more expensive for international investors.
On Thursday, crude jumped $5.62 a barrel - its 2nd-biggest 1-day jump ever - on the weaker dollar, tensions in Russia and concerns about a U.S. recession.
Retail gas prices dropped overnight, extending the downward trend for a 36th day, according to a survey of gas station credit-card activity. (Full story.)
Next week brings a slew of economic news, including the July existing-home sales report Monday.
Financials: Lehman (LEH, Fortune 500) shares rose 5% on reports that Korea Development Bank may be considering buying the embattled brokerage. The stock has been hard hit on concerns about its financial solvency, with many brokerages cutting 3rd-quarter and full-year forecasts on the company.
Lehman has been looking for a buyer for at least part of its investment management business, but talks with Chinese and Korean investors had reportedly broken down earlier in the week.
A variety of other financial stocks jumped, too, including Dow components American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500).
Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) remained active, with Fannie ending higher and Freddie ending lower. Both stocks have slumped recently on fears that a government takeover is imminent. (Full story.)
Other movers: The decline in oil prices boosted a number of airline, railroad and trucking stocks, with the transportation companies directly benefiting from lower fuel costs. The Dow Jones Transportation average (DJTA) gained 2.5%, while the Amex Airline index added 8%.
Blue-chip gains were broad based, with 28 out of 30 Dow components rising. The only losers were commodities firms Alcoa (AA, Fortune 500), Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500).
Gainers included Boeing (BA, Fortune 500), which said that it may withdraw from the bidding for a $35 billion tanker contract with the Air Force, if the Pentagon won't give it 4 more months to put together an offer.
Dow component Verizon Communications (VZ, Fortune 500) is in talks with Google (GOOG, Fortune 500) to make Google the default search provider on Verizon Wireless devices, The Wall Street Journal reported. The deal reportedly would give Google a share of ad revenue.
Microsoft (MSFT, Fortune 500), Yahoo (YHOO, Fortune 500), Oracle (ORCL, Fortune 500) and Apple (AAPL, Fortune 500) were among the big tech gainers.
Market breadth was positive and volume was light. On the New York Stock Exchange, winners topped losers by 7 to 3 on volume of 890 million shares. On the Nasdaq, advancers beat decliners 5 to 2 on volume of nearly 1.4 billion shares.
Other markets: In the bond market, Treasury prices fell, raising the yield on the benchmark 10-year note to 3.86% from 3.83% late Wednesday. Prices and yields move in opposite directions.
COMEX gold for October delivery fell $10.90 to $824.10 an ounce. 
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