Stocks get bailout boost
Wall Street advances after a deal is reached on a $14 billion plan to boost the troubled auto industry.
NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday, recovering from a mid-afternoon retreat, as investors welcomed reports that Congress and the White House have struck a deal to provide a $14 billion bailout to the struggling auto industry.
The Dow Jones industrial average (INDU) added 0.8%. The Standard & Poor's 500 (SPX) index gained 1.2% and the Nasdaq composite (COMP) also gained 1.2%.
Stocks rallied through the early afternoon in response to the auto bailout news, lost steam after the release of the November Treasury budget, and then recharged the advance near the close.
The Treasury budget widened to $164.4 billion last month from $98.2 billion in the previous month, versus forecasts for a $171 billion gap.
The budget deficit now totals $401.6 billion in just the first two months of the fiscal year, October and November. The budget deficit for all of fiscal year 2008 was $455 billion.
Stocks slipped Tuesday as investors pulled back after a big rally in the previous 2 1/2 weeks. Between hitting the most recent bear market lows on Nov. 20 and Monday's close, the S&P 500 rose 21%.
After that selloff, stocks managed some gains Wednesday, which partly reflected that an auto package is looking more likely, said Michael Sheldon, chief market strategist at RDM Financial Group.
While the advance was likely a bear market rally, there is also some genuine optimism that has been lifting stocks of late, he said.
Investors are getting hit by awful economic news and corporate profit forecasts. But they are also seeing the significant policy response by the Federal Reserve and government, as well as central banks and governments around the world.
"With an auto rescue package likely and a very large stimulus package likely early next year, some investors are starting to see the light at the end of the tunnel," Sheldon said.
Automakers: Congress and the White House have reached a deal on a $14 billion auto sector bailout that could bring a vote later Wednesday. The package would enable GM and Chrysler to avoid filing for bankruptcy through at least the end of March.
It is assumed that this would be sufficient time for the Obama administration and the new Congress to come up with a longer-term solution for the ailing automakers.
Ford Motor is also eligible for part of the loan, but the company says it has enough cash to avoid bankruptcy for now and just wants access to the money as a backstop.
However, investors took a sell-the-news approach and sent shares of GM (GM, Fortune 500) and Ford Motor (F, Fortune 500) lower.
Meanwhile, GMAC Financial Services, General Motors' finance unit, is struggling to raise enough capital to become a bank holding company, something it must do to access much-needed federal funds.
Experts worry that the failure of any one of the Big Three could trigger massive job losses and send the U.S. deeper into recession.
The U.S. has been in a recession since December 2007, according to a National Bureau of Economic Research report released last week. A majority of top-level executives think the recession will last at least another year, according to a survey by Duke University released Wednesday.
In economic news Wednesday, October wholesale inventories fell 1.1% versus forecasts for a decline of 0.2%. Inventories fell a revised 0.4% in the previous month.
Company news: Yahoo (YHOO, Fortune 500) was handing out pink slips Wednesday, with the company following through on an earlier announcement that it will cut 10% of the workforce, or 1,400 people. Shares gained nearly 10%.
Electronic Arts (ERTS) said it will cut staff as it seeks ways to trim costs. But the electronics gaming company didn't specify the number of cuts it will make. EA also cut its fiscal 2009 earnings guidance. Shares fell 12%.
Australian mining company Rio Tinto (RTP) said it will cut 14,000 jobs worldwide - or 12.5% of its global workforce - and cut its capital investment so as to save $1.6 billion a year by 2010. Shares rallied 29%.
So far companies have announced more than 50,000 U.S. job cuts in December. Year-to-date, as of Nov. 30, companies have announced 1.9 million in job cuts, according to the Labor Department.
On the upside, Dow stocks Alcoa (AA, Fortune 500), Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) led a broader rally in the metal and mining and oil services sectors.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by over two to one on volume of 1.31 billion shares. On the Nasdaq, advancers topped decliners by almost two to one on volume of 2 billion shares.
Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.72% from 2.69 late Tuesday. The 10-year yield dipped below 3% last month for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.
Lending rates improved modestly. The 3-month Libor rate slipped to 2.1% from 2.16% Tuesday, according to Bloomberg. The overnight Libor fell to a new record low of 0.12% from 0.14% Tuesday. Libor is a key bank lending rate.
Other markets: The dollar gained versus the euro and fell against the yen.
U.S. light crude oil for January delivery rose $1.45 to settle at $43.52 a barrel on the New York Mercantile Exchange following a mixed weekly crude inventories report. Oil recently hit four-year lows.
COMEX gold for February delivery jumped $34.60 to $808.80 an ounce.
Gasoline continued its fall to nearly four-year lows, with prices down 1.5 cents to a national average of $1.683 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA. Prices have been sliding for almost three months and have dropped more than $2 a gallon, or 56%. 
