U.S. stocks rallied ahead of the three-day Easter weekend on several measures meant to help alleviate the mortgage-led credit crunch, while profit-taking hammered commodities prices around futures contracts expiration.
The Dow Jones industrial average rose 261.66, or 2.16%, to 12,361.32; the S&P 500 rose 31.09, or 2.39%, to 1,329.51; and the Nasdaq composite increased 48.15, or 2.18%, to 2,258.11. All numbers are preliminary.
Government-backed mortgage lenders Fannie Mae and Freddie Mac posted double-digit percentage gains after the Bush administration agreed Wednesday to lower their capital requirements so they can help rescue the ailing housing market. Financial stocks also rebounded as the Federal Reserve announced it will lend to primary dealers $75 billion of Treasury paper while accepting a broader range of mortgage-backed securities. The Federal Reserve Bank of New York today said in a statement it will accept agency collateralized-mortgage obligations and AAA/Aaa-rated commercial mortgage-backed securities in addition to AAA/Aaa-rated residential mortgage-backed paper.
The liquidity measures helped offset a batch of poor economic news today: Claims for unemployment benefits rose 22,000 to 378,000 in the week ended March 15, consistent with a deteriorating job market; the Conference Board reported that the index of leading economic indicators fell 0.3% in February after declining 0.4% the prior month; and the Federal Reserve Bank of Philadelphia said its index of regional manufacturing activity remained in negative territory at -17.4 in March, but better than the -24 in February.
Todays acute liquidity and credit pressures signal the dangers of leverage and provide an inducement to unwind it, said Milton Ezrati, senior market strategist at asset management firm Lord, Abbett & Co.