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NEW YORK, US - US STOCKS rebounded on Tuesday, clawing back a day after their biggest drop in seven years on growing optimism that US authorities may finance a rescue of insurer American International Group (AIG).
Hopes for a rescue grew after a source briefed on the matter told wires several hours after the market close that the Federal Reserve was negotiating roughly US$85 billion (S$121.5 billion) in financing to keep AIG from collapsing.
Index futures pointed to a higher market open on Wednesday after the news. Any rescue of AIG would serve to calm global financial markets roiled by a streak of Wall Street disasters, including the bankruptcy of Lehman Brothers.
'The Federal Reserve obviously thought the systemic risk from a major insurance company was too great to let go.' 'Remember, AIG not only does major business with Wall Street and the financial markets but also Main Street,' said Mr Chris Orndorff, who helps oversee US$50 billion in assets as managing principal at Payden & Rygel Investment Management in Los Angeles.
During the regular session, a Bloomberg report that the Federal Reserve was considering a loan to AIG pulled the market out of an afternoon funk.
The market had been lower after the US central bank disappointed investors by opting not to cut interest rates as many expected.
In the regular session, the Dow Jones industrial average rose 141.51 points, or 1.30 per cent, to close at 11,059.02, while the Standard & Poor's 500 Index gained 20.90 points, or 1.75 per cent, to 1,213.60. The Nasdaq Composite Index was up 27.99 points, or 1.28 per cent, at 2,207.90.
The Federal Reserve held its key benchmark US interest rate steady on Tuesday, opting for the time being to soothe rattled financial markets with central bank lending facilities rather than rate cuts.
On Monday, Wall Street had its worst day since markets reopened after the September 11 attacks in 2001.
Financial shares, rebounding from their worst day ever on Monday, led the market higher after the report of possible Fedinvolvement in resolving the crisis surrounding AIG.
The insurer's credit ratings had been downgraded late on Monday, adding to concern about its ability to raise capital to help weather fast-mounting credit losses.
Also helping financials on Tuesday, a source told wires that Barclays will buy the main investment banking assets, including the US broker-dealer business, of Lehman Brothers Holdings, which filed for bankruptcy on Monday and helped trigger a global rout in equity markets.
An S&P index of financial stocks ended the session up 6.2 per cent.
After Tuesday's closing bell, Morgan Stanley shares rose more than 7 per cent after reporting stronger-than-expected quarterly results.
AIG shares, under heavy pressure for days, hit a low of US$1.25 early in the session, but then pared the worst of its losses.
It ended down 21.2 per cent at US$3.75, before trading at US$2.50 in after-hours trade.
At one time, AIG was the world's largest insurer based on market value.
Among other financial companies, Wells Fargo shares jumped 12.7 per cent to US$34.93, while Bank of America rose 11.3 per cent to US$29.55.
But shares of Goldman Sachs Group Inc fell 1.8 per cent to US$133.01 after the investment bank said quarterly profit plunged 70 per cent as the worst market slump in decades led to weaker-than-expected revenues.
HP gains, Oil drops
Hewlett-Packard rose 6.8 per cent to US$48.41 and ranked among the stocks giving the biggest boost to the Dow.
HP's chief financial officer told the Bank of America investment conference in San Francisco that the company is 'very confident' it can hit its current quarter profit target, despite currency headwinds and ongoing weakness in its printer business.
Also helping the market, oil prices tumbled to end down nearly 5 per cent, dropping for the second day in a row.
US crude futures lost US$4.56 to settle at US$91.15 a barrel. Lower oil prices helped fuel-cost sensitive airlines and retailers.
The airline stock index ended up 11.5 per cent. The S&P retail index advanced 0.8 per cent.
The stock of computer maker Dell fell 11.2 per cent to US$15.98 and was a top drag on the Nasdaq. The company said it was seeing softer global demand for technology.
Consumer electronics retailer Best Buy posted a steeper-than-expected drop in quarterly profit as it spent more than planned to bolster its stores, sending shares down 2.8 per cent to US$42.46.
Trading was active on the New York Stock Exchange, with about 2.2 billion shares changing hands, above last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 3.2 billion shares traded, also far above last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by 17 to 15, while advancers beat decliners on the Nasdaq by about 4 to 3. -- REUTERS
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