Deal news sparked buying, while wholesale inflation surged and Greenspan warned about the spread of subprime problems
Stocks gained ground Thursday thanks to brisk merger activity, along with a report showing foreigners buying U.S. securities. A jump in wholesale inflation didn't hold down prices for long in early trading. And the market dipped in the early afternoon following comments from former Federal Reserve Chairman Alan Greenspan, who said he thinks the subprime loan problem could spread, but it hasn't hurt the consumer yet, but quickly recovered. Today's economic data is likely to keep the Federal Reserve on hold at next week's policy meeting, says Standard & Poor's Equity Research.
The Dow Jones industrial average rose 26.28 points, or 0.22%, to 12,159.68, boosted by strength in Alcoa (AA) and Citigroup (C). The broader Standard & Poor's 500 index gained 5.11 points, or 0.37%, to 1,392.28. The tech-heavy Nasdaq composite edged up 6.96 points, or 0.29%, to 2,378.7.
In economic news Thursday, the U.S. producer price index jumped 1.3% in February, sparked by higher energy prices, with the core up a hot 0.4%. Those follow a 0.6% decline in January, and a 0.1% increase in the core. On a year-over-year basis, the headline reading accelerated to a 2.5% pace from 0.2% previously. The core rate is now at a 1.8% rate, the same as in January. "The strength in these data will keep the FOMC on inflation watch next week," says Action Economics.
The March Empire State Manufacturing index plunged to 1.85 from 24 in February -- much weaker than expected. Another regional survey also was disappointing. The Philadelphia Fed Index fell to 0.2 in March, after dropping more than 7 points to 0.6 in February. The soft headline number was in contrast to expectations for an acceleration in growth as weather improved, says Action Economics. However, it notes that most of the components increased and suggested a healthier picture on the region's activity.
On the bright side, and foreign purchases of U.S. securities rose $74.6 billion in January, after a revised $14.7 billion decline in December. Total purchases of stocks and bonds rose $97.4 billion, after a $14.3 billion increase previously. Foreign purchases of Treasuries rose $15.3 billion. The rebound back near the monthly average of inflows suggests the decline in December was an aberration, says Action Economics, adding that foreign inflows of cash again more than covered the January $59 billion trade deficit.
U.S. jobless claims fell 12,000 to 318,000 in the week ended Mar. 10, following a 330,000 print the week before. This week's decline suggests the run up in February was more of a weather event, says Action Economics.
On Friday, investors will get even more economic news, including the consumer price index, real earnings, industrial production, and consumer sentiment.
In a speech Thursday at the Futures Industry Association annual meeting in Boca Raton (Fla.), Greenspan said the subprime problem "is not a small issue" and there is risk that it could spillover to other sectors. But he said he thinks there hasn't been much spillover yet to consumer behavior.
Merger news helped spark buying Thursday. InterContinental Exchange (ICE) made a bid for CBOT Holdings (BOT). ICE would issue 1.42 ICE shares for each BOT share, valued at $187.34 per BOT share based on yesterday's closing price of ICE shares.
Webex Communications (WEBX) agreed to be acquired by Cisco Systems (CSCO) for about $3.2 billion, or $57 per share in cash.
PHH Corp. (PHH) agreed to be acquired by GE Capital Solutions, the business-to-business leasing, financing, and asset management unit of GE, in an all cash deal valued at about $1.8 billion, or $31.50 per PHH share. GE says it will to sell PHH's mortgage operationss to an affiliate of Blackstone Group.
Argonaut Group (AGII) agreed to merge with PXRE Group LTD. AGII holders will to get 6.4672 shares of a new company, Argo Group International Holdings Ltd. AGII president and CEO Mark Watson III will assume those titles at the combined company. AGII plans to pay dividend of about $60 million.
And Mapinfo (MAPS) will be bought by Pitney Bowes (PBI) for about $408 million, or $20.25 per share. Mapinfo shares surged 50% on the news.
In the troubled subprime mortgage area, Accredited Home Lenders (LEND) rose on speculation that the company may get a capital infusion or might be acquired.
On the earnings front, Bear Stearns (BSC) posted first-quarter earnings per share of $3.82, vs. $3.54 a year ago, on a 14% revenue rise. The investment bank noted that residential mortgage-related revenues decreased from the prior year, reflecting weakness in the U.S. residential mortgage-backed securities market.
In the energy markets, April West Texas Intermediate crude oil futures fell 64 cents to $57.52 a barrel. News that OPEC would not alter production levels had little impact, and was largely priced into the market ahead of Thursday's meeting, reports Action Economics.
European markets finished higher after Wednesday's selloff. In London, the FTSE-100 index rose 132.5 points, or 2.21%, to 6,133.2. Germany's DAX index gained 137.77 points, or 2.14%, to 6,585.47. In Paris, the CAC 40 index was up 93.63 points, or 1.77%, to 5,389.85.
Asian markets recovered some ground after Wednesday's steep losses. In Japan, the Nikkei 225 index climbed 183.5 points, or 1.1%, to 16,860.39. In Hong Kong, the Hang Seng index gained 132.51 points, or 0.7%, to 18,969.44.
Treasury prices fell as equities sustained yesterday's bounce and held their own again even after a jump in the PPI and negative comments on the subprime sector from Greenspan. The 10-year note yield rose to 4.536%.