Friday 12th September 2008
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The trigger for the late rally in bank stocks was a report in the online edition of The Wall Street Journal, citing sources familiar with the situation, as saying Lehman was talking to suitors including Bank of America.
Lehman shares ended down nearly 42% at US$4.22, just above a three and a half-year low of US$3.80 hit earlier. Investor fears that Lehman would fail to raise enough capital to cover its mortgage-related losses have kept it under steady pressure all week. Bank of America shares closed up 2% at US$33.06.
Not all financials rebounded. Merrill Lynch & Co., the third-largest US securities firm, tumbled 17% to US$19.43 for its biggest drop since October 1987.
The Dow Jones industrial average ended up 164.79 points, or 1.46%, at 11,433.71. The Standard & Poor's 500 Index closed up 17.01 points, or 1.38%, at 1,249.05. The Nasdaq Composite Index finished up 29.52 points, or 1.32%, at 2,258.22.
CSX Corp., the third-largest US railroad, climbed 11% and led the S&P 500 Transportation Index to its biggest gain since July as crude declined and the carrier raised its 2008 earnings forecast.
US crude fell US$1.71 to settle at US$100.87 a barrel after dipping as low as US$100.10, the lowest level since early April. London Brent slipped US$1.33 to US$97.64 a barrel after dropping to a six-month low of US$96.99.
Downward pressure came from a rising US dollar, which scaled a one-year high against the euro. A stronger dollar can weaken the purchasing power of buyers using other currencies - adding momentum to already flagging global consumption.
Encouraging the losses, the Saudi-owned Al Hayat newspaper said on Thursday that Saudi Arabia has no plans to cut oil output at present unless customer demand falls.
An index of airlines rose 6.4% while the Dow Jones Transport Index added 3.4%.
US dollar advances
The US dollar rose to a one-year high against the euro on signs global growth is slowing, and the yen strengthened on speculation investors will sell higher-yielding assets funded by loans in Japan.
The yen appreciated to the highest level against the euro since August 2006 as concern Lehman will collapse encouraged investors to pare carry trades. New Zealand's currency dropped to two-year lows against the dollar and the yen as the Reserve Bank reduced borrowing costs more than most economists forecast.
The US currency climbed 0.3% to US$1.3956 per euro at 4pm in New York, from US$1.3998 on Wednesday, after touching US$1.3882, the strongest level since September 18, 2007. The yen advanced 0.8% to 149.58 per euro, from 150.75, after touching 147.54, the strongest in more than two years. The yen gained 0.5% to 107.16 per dollar, from 107.70.
The ICE's Dollar Index touched 80.375 today, the highest level since September 2007, when the Federal Reserve began cutting its target lending rate from 5.25% to 2% to stave off a recession. The index, a gauge measuring the dollar against the currencies of six US trading partners, reached a low of 70.698 on March 17.
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