Wall Street rallied on Friday as investors welcomed falling crude prices. Financial stocks were buoyed by talk that Lehman Brothers was a takeover candidate, while comments from Fed chairman Ben Bernanke eased inflation fears.
In a speech at Jackson Hole, Wyoming, Mr Bernanke said a stronger dollar, weaker economy and declining crude prices were reducing inflationary pressures. This helped placate investors who worried that the Fed would raise interest rates in the near term.
On Friday, oil futures exhibited the weakness Mr Bernanke cited. NYMEX light crude for October delivery fell US$6.59 to settle at US$114.59 per barrel
The Dow gained 197.85, or 1.73 per cent to 11628.06, while the broader S&P 500 was up 14.48, or 1.13 per cent at 1292.20. The NASDAQ added 34.33, or 1.44 per cent to close at 2412.71.
In corporate news, there was speculation the Korean Development Bank might consider making a bid for Lehman Brothers. The brokerage had taken a hit in recent sessions due to concerns about its financial vulnerability and third quarter profitability.
However, bid interest from the Korean Development Bank saw Lehman Brothers rally 5 per cent.
The news helped buoy the broader financial sector. Citigroup gained 3.8 per cent, Bank of America rallied 4 per cent and JPMorgan picked up 3.9 per cent. American Express and American International Group were up 4.8 per cent and 0.5 per cent respectively.
Outside of the Dow 30, Goldman Sachs closed 1.3 per cent higher and Merrill Lynch gained 3.6 per cent.
Even a grim economic outlook from billionaire investor Warren Buffet couldn’t sour sentiment. He said the US economy was in a recession and would remain in one for several more months.
His investment company, Berkshire Hathaway, gained about 1 per cent, or US$1,100 to close at US$116,100.
Elsewhere, Boeing was up 3.2 per cent after saying that it might withdraw from bidding for a US$35 billion tanker contract with the Air Force if it wasn’t given four more months to put together an offer.
In other news, The Wall Street Journal reported that Verizon Communications and Google were in talks to make Google the default search provider on Verizon Wireless devices.
Verzon shares added 2.1 per cent, while Google edged 0.8 per cent higher.
Among other technology stocks, Microsoft and Yahoo! were up 2.4 per cent and 2.2 per cent respectively, while Oracle added 1.8 per cent and Apple closed 1.4 per cent higher.
Resource shares capped the day’s gains. Energy majors Exxon Mobil and Chevron lost 0.1 per cent and 0.5 per cent following the retreat in crude prices. Meanwhile, ConocoPhillips fell 2.2 per cent and Schlumberger shed 0.9 per cent.
Declining metals prices weakened mining firms. Copper and Platinum futures were lower, while COMEX gold for December delivery fell US$5.50 to US$833.50 an ounce.
Freeport-McMoRan Copper & Gold took a 3.3 per cent hit, US Steel dropped 3.9 per cent and Alcoa was off 1.4 per cent.
ADRs for BHP Billiton, Rio Tinto and Vale were down 0.1 per cent, 1.9 per cent and 3 per cent respectively.
UK markets
British stocks closed higher on Friday after banks rebounded on the back of improved global sentiment. Statements from US Federal Reserve chairman Ben Bernanke helped to boost the FTSE further in the afternoon.
The FTSE 100 rose 135.40 points, or 2.52 per cent to 5505.60.
Banking stocks were lifted after data showing that UK GDP didn't grow at all in the second quarter of 2008 had insiders speculating that interest-rate cuts were more likely.
HBOS climbed 6.3 per cent, Royal Bank of Scotland increased 5.4 per cent and Barclays was up 5.1 per cent. Lloyds TSB rose 7 per cent with speculation of stake-building emerging after 20 million shares changed hands in a single trade.
Deal news also gave the financial sector a boost, with shares of Benfield up 27.5 per cent, or 346p after US listed insurance broker Aon said it had reached a deal to buy the insurer for 738 million pounds, or 350p a share.
Bradford & Bingley advanced 3.9 per cent after it said underwriters and other banks had entered a lock-up agreement not to dispose of the 426.7 million new shares for 20 days.
Miners pared early gains as gold fell almost 1 per cent and platinum lost more than 3 per cent.
Eurasian Natural Resources fell 2.7 per cent, Xstrata shed 1.9 per cent, while Anglo American was up 0.2 per cent, retreating from earlier gains.
However, BHP Billiton and Rio Tinto were up 1.7 per cent and 0.7 per cent respectively after the Australian competition watchdog identified the iron ore market as its only main concern regarding the proposed takeover of Rio.
In earnings related news, shares in industrial services group Rentokil Initial fell 6.1 per cent. The company reported an 80 per cent drop in first-half net profit to 13.2 million pounds, from 66.7 million pounds a year ago.
European markets
European shares gained on Friday as a retreating oil price boosted car manufacturers and airlines. Banks drove gains, turning around hefty losses from earlier in the week.
Germany’s DAX gained 105.46, or 1.69 per cent to 6342.42, while France’s CAC 40 added 95.84, or 2.23 per cent to 4400.45.
Deutsche Postbank surged 5.5 per cent and Deutsche Bank added 2.9 per cent. Natixis gained 7.4 per cent and BNP Paribas lifted 3.6 per cent.
Porsche rose 4.3 per cent and BMW gained 3.2 per cent. EADS shares advanced 4.2 per cent. Air France-KLM added 5.2 per cent and Lufthansia rallied 2.4 per cent.
TNT jumped 6.9 per cent on rumours that US rival United Parcel Service could make a bid as early as the weekend. TNT declined to comment.
Deutsche Post rallied 3.5 per cent, the most in two weeks after Goldman Sachs recommended buying shares in Europe's largest mail carrier.
Shares in Hochtief rose 8.5 per cent as traders cited a magazine report, which said that Hochtief's two major shareholders, Spanish builder and Russian billionaire Oleg Deripaska, were considering breaking up the German construction company.
Japanese markets
Japanese stocks sank on Friday, as exporters fell on a stronger yen and financial stocks suffered as credit woes. The fall was mitigated as sharp gains in oil prices lifted energy shares.
The benchmark Nikkei 225 ended down 86.17 points, or 0.7 per cent, at 12666.04. The index fell 2.7 per cent for the week.
Honda slid 2.6 per cent, while industrial robot maker Fanuc lost 2.5 per cent. The stocks were the top two drags on the Nikkei.
Mitsubishi UFJ fell 2.1 per cent and Sumitomo Mitsui Financial Group gave up 3.6 per cent.
Oil and gas field developer Inpex gained 2.2 per cent after oil prices rose nearly 5 per cent.
Drug maker’s Shionogi & Co and Eisai Co gained 5.2 per cent and 2.3 per cent respectively as investor’s switched bets on stocks considered less vulnerable to an economic downturn.
Mitsubishi Corp was up 3.2 per cent and Mitsui & Co gained 2.6 per cent.
Hong Kong markets
Financial markets were closed on Friday due to a typhoon.
The Overnight MarketWatch report is provided by SHAW Stockbroking's egoli - simple but informative market news for the everyday investor.
egoli news: A view of the Australian market, from your perspective, as it happens. For more information go to http://www.egoli.com.au/egoli/egolihome.asp