Stocks rally on bailout hopes

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NEW YORK (CNNMoney.com) -- Stocks rose Friday, ending a choppy session higher, as investors welcomed the Treasury Department's indication it might step in and bail out the troubled automakers after a $14 billion bill collapsed in the Senate.

The Dow Jones industrial average (INDU) added 0.8%. The Standard & Poor's 500 (SPX) index climbed 0.7% and the Nasdaq composite (COMP) gained 2.2%.

For the week, the Dow and S&P 500 ended with modest losses and the Nasdaq posted a slim gain.

Stocks slumped Thursday on fears that the $14 billion auto rescue bill would lose traction in the Senate. Those concerns proved correct. Negotiations fell apart Thursday night, with Democrats, Republicans, the individual companies and the United Auto Workers union unable to reach a compromise.

But on Friday, the White House said it would consider using some of the money set aside to help banks and Wall Street for bailing out the auto industry. The Bush administration said it could access the $700 billion bailout already approved by Congress, known as the Troubled Asset Recovery Program or TARP.

The Treasury Department, which regulates TARP, said in a statement that it was willing to use the money as a short-term solution "until Congress reconvenes and acts to address the long-term viability of the industry."

"It seems like they are at least going to put the automakers in intensive care with an IV drip and keep them alive until the new administration takes over," said Bill Stone, chief investment strategist at PNC Financial Services Group.

"I think the stock market sees that as both good and bad news," Stone said. "This will help, but there's still no real closure."

Experts say the failure of any one of the Big Three could trigger massive job losses and send the U.S. deeper into recession. Automaker shares seesawed through the session. In afternoon trading, GM (GM, Fortune 500) fell 4.3% and Ford Motor (F, Fortune 500) rose 3.5%.

Economy: In addition to the automakers, investors were focused on the day's slew of economic reports.

Retail sales fell 1.8% in November, after falling 2.9% in the previous month. Economists thought sales would fall 2% on average, according to a Briefing.com survey. Sales excluding volatile autos dropped 1.6% after declining a revised 2.4% in the previous month. Economists expected sales excluding autos to slump 1.8%.

The Producer Price Index (PPI), a measure of wholesale inflation, dropped 2.2% in November after falling 2.8% in October. Economists thought PPI would slide 2%. The so-called CORE PPI, which strips out volatile food and energy costs, rose 0.1% as expected after gaining 0.4% in the previous month.

The University of Michigan consumer sentiment index rose to 59.1 from 55.3, versus the consensus estimate of 54.5.

Business inventories fell 0.6% in October, the government reported, versus forecasts for a slide of 0.2%. Inventories fell a revised 0.4% in September.

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 recent Duke University survey.

Company news: Bank of America (BAC, Fortune 500) said late Thursday that it will cut up to 35,000 jobs over the next three years as a result of its purchase of Merrill Lynch and the weak economy. Shares were little changed.

A variety of technology shares bounced, including big cap names Intel (INTC, Fortune 500), Apple (AAPL, Fortune 500) and eBay (EBAY, Fortune 500).

Market breadth was mixed. On the New York Stock Exchange, losers beat winners two to one on volume of 1.43 billion shares. On the Nasdaq, advancers beat decliners seven to six on volume of 1.92 billion shares.

Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.58% from 2.60% Thursday. Treasury prices and yields move in opposite directions.

The 10-year yield dipped below 3% in November for the first time since the note was first issued in 1962.

Lending rates improved modestly. The 3-month Libor rate slipped to 1.92% from 2% Thursday, according to Bloomberg. The overnight Libor held steady at a record low of 0.12%. Libor is a key bank lending rate.

Other markets: In global trading, Asian and European markets ended lower.

The dollar fell versus the euro and the yen.

U.S. light crude oil for January delivery fell $1.70 to settle at $46.28 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery fell $6.10 to $820.50 an ounce.

Gasoline continued its fall to four-year lows, with prices down eight-tenths of a cent to a national average of $1.656 a gallon, according to a survey of credit-card swipes released Friday by motorist group AAA. Prices have been sliding for almost three months and have dropped more than $2 a gallon, or 57%, since the July high of $4.114 a gallon.