Wall Street higher on hopes of credit recovery

Stocks rise on hopes credit market easing will help temper recession

Investors who had sold furiously in recent weeks in response to immobile credit markets became more optimistic as bank-to-bank lending rates eased further.

The improvement lending rates helped to temper concerns about tight credit contributing to a prolonged recession, but Federal Reserve Chairman Ben Bernanke still warned that the economy is likely to be "weak for several quarters, and with some risk of a protracted slowdown." He told the House Budget Committee that a fresh round of government moves might help ease the country's economic weakness.

"The market liked what Bernanke had to say, and there were hints that he's leaving the door open for further moves in terms of rate cuts or economic stimulus," said Ryan Larson, head of equity trading at Voyageur Asset Management. "And, with credit easing in slow baby steps, the market has started to realize that this is going to be a process."

Wall Street was also sifting through the first of hundreds of earnings reports expected this week, seeking clues about future business conditions. Among those reporting, oilfield services provider Haliburton Co. topped estimates, and CEO Dave Lesar told investors and analysts in a conference call, "We expect that any major macroeconomic disruptions will ultimately correct themselves."

By midday, trading was quite orderly, far from the frenetic activity seen during the previous two weeks, when investors' heightened anxiety about credit markets and the economy sent stocks plunging or soaring and the Dow moving by hundreds of points a day. The relative calm in Friday's session, when the Dow fell 127, and Monday's trading, had more investors feeling confident that the worst of the market's volality was behind it.

Still, with back-and-forth trading a hallmark during recoveries from plunges in the past, investors were also expecting that Wall Street would be subject to price swings for some time.

In midday trading, the Dow rose 187.49, or 2.12 percent, to 9,039.71.

Broader indexes also rose sharply. The Standard & Poor's 500 index rose 21.06, or 2.24 percent, to 961.61. The Nasdaq composite index rose 20.09, or 1.17 percent, to 1,731.38.

The credit markets were gradually responding to the series of bailout measures by governments around the world, including a joint U.S. and European plan to buy stakes in private banks to boost their lending. Demand for Treasury bills, regarded as the safest assets around, lessened Monday but remained relatively high in a sign that there was still much fear in the markets.

The three-month Treasury bill Monday yielded 0.91 percent, up from 0.82 percent late Friday. That's better than the 0.20 percent of last Wednesday, but the yield but has not surpassed 1 percent in more than a week.

Investors were also optimistic about the steady decline in interbank lending rates, which fell for a sixth straight day Monday. The London interbank offered rate, or Libor, for three-month dollar loans fell 0.36 percent to 4.06 percent, the biggest daily drop since January.

The benchmark 10-year Treasury note was little changed. The yield, which moves opposite its price, rose to 3.92 percent from 3.93 percent late Friday.

Investors also received a bit more detail about how Treasury Secretary Henry Paulson plans to roll out a $250 billion plan to recapitalize banks. Paulson said the government will own shares in the banks that should be paid back with a reasonable return, and expects that the investment will eventually make money.

Meanwhile, there was some optimistic data that showed the economy's health improved for the first time in five months in September as supplier deliveries and new orders strengthened, a private research group said Monday. The New York-based Conference Board said its monthly forecast of future economic activity rose 0.3 percent, a much better reading than the 0.2 percent drop expected by Wall Street economists surveyed by Thomson/IFR.

In corporate news, Haliburton shares spiked $1.53, or 8.3 percent, to $19.77 after the company's results surpassed expectations. The company also said that a slowdown in North American drilling won't hurt business in the fourth quarter.

Earnings from American Express Co., Lockheed Martin Corp. and Texas Instruments Inc. are due later in the day.

Light, sweet crude was up $1.80 to $73.65 a barrel on the New York Mercantile Exchange. Last week, it sank to an almost 16-month low on worries about a deep global recession obliterating fuel demand.

The Russell 2000 index of smaller companies rose 2.13, or 0.40 percent, to 528.56.

Advancing issues outpaced decliners by 2 to 1 on the New York Stock Exchange, where volume was a light 319.2 million shares.

Financial markets overseas were higher. Japan's Nikkei stock average closed up 3.59 percent. Britain's FTSE 100 was up 3.81 percent, Germany's DAX index was up 0.99 percent, and France's CAC-40 was up 2.60 percent.-- Wall Street bounded higher Monday, extending its streak of volatility as investors took signs of easing in the credit markets as evidence that government steps to revive the battered financial system are taking hold. The Dow Jones industrials rose more than 180 points, and all the major indexes were up more than 1 percent.