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While you were sleeping: Bernanke calms banks; Dow rallies

25 Feb 2009 10:43businesswire

U.S. Federal Reserve Chairman Ben Bernanke soothed concern about the prospect of nationalized banks, saying the country would seize lenders only if they lurched into deeper losses. “I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said in testimony to the Senate Banking Committee.

Still, he warned that recession in the world’s biggest economy may extend into 2010 as the federal government grapples to restore the banking system and financial markets. “If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability, and only if that is the case, in my view, there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Bernanke said.

His comments came as Bloomberg reported insurer American International Group may abandon efforts to repay a US$60 billion government loan after failing to lure enough bidders. Instead it may hand stakes in some of its businesses directly to the government, the report said, citing a person familiar with the situation.

AIG is also in talks to convert the government’s US$40 billion of preferred shares to ordinary stock, ending the requirement to pay a 10% dividend, Bloomberg said. Shares of AIG tumbled 25% to 39.6 cents on the NYSE.
Still, most stocks rallied on Wall Street after Bernanke’s and as investors snapped up shares as benchmark indexes sank to 12-year lows this week.

The Dow Jones Industrial Average rose 2.5% to 7290.17 and the Standard & Poor’s 500 Index climbed 3.2% to 767.37. The Nasdaq Composite climbed about 3% to 1428.69. Bank of America jumped 17% to US$4.58 and Citigroup jumped 13% top US$2.42, leading bank shares higher. General Motors soared 18% to US$2.09, leading the Dow higher.

Home Depot rose 10% to US$20.60 after posting fourth-quarter earnings that beat estimates. Fashion chain Nordstrom Inc. jumped 18% to US$13.41 after reporting a higher-than-expected fourth-quarter profit.
Alcoa Inc. rose 7.9% to US$6.27 and Walt Disney gained 5.2% to US$17.86.

U.S. stocks initially pared gains after the Conference Board’s measure of consumer confidence tumbled to a record low. The confidence index fell to a reading of 25 this month, the lowest since records began in 1967. The S&P/Case-Shiller index of house prices in 20 U.S. cities dropped by a record 18.5% in December from the same month of 2007.

U.S. Treasuries fell as stocks gained, reversing an earlier gain on the back of the weak confidence report.
The yield on two-year notes rose 3 basis points to 0.96% while the yield on five-year notes rose 4 basis points to 1.85%.

The Yen sank to a three-month low against the dollar and weakened against the EURO. The yen was at 96.9 per dollar, having reached 96.92, from 94.60. It weakened to 124.47 per euro from 120.10. The greenback fell to $1.284 per euro from $1.2694.

Crude oil rose as stocks gained on Wall Street, stoking optimism demand for fuel may revive. Crude for April delivery gained 3.7% to US$39.86 a barrel on the New York Mercantile Exchange. Copper futures for May delivery rose 3.4% to US$1.50 a pound in New York. Gold fell as demand waned for the precious metal as a haven, after reaching more than US$1,000 an ounce last week.

Gold futures for April delivery fell 2.6% to US$969.50 an ounce on the New York Mercantile Exchange.
In Europe, industrial orders fell for a fifth straight month in December. Orders in the euro zone fell 5.2% from November, extending the longest downturn since 1994, according to the European Union’s statistics office.
In France, retail sales climbed in January as stores cut prices to lure shoppers. Spending on manufactured goods rose 1.8% last month from December.

Stocks fell in Europe. The Dow Jones Stoxx 600 Index declined 1.4% to 172.86 as weakening corporate profits stoked concern about the impact of the region’s downturn. Swiss drug developer Basilea Pharmaceutica slumped 37% after the company posted a full-year loss. The DAX 30 fell 1% to 3895.75 and the CAC 40 edged down 0.7% to 2708.05. The FTSE 100 Index fell 0.9% to 3816.44.


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