Stocks Rally on Data, Mortgage News

Encouraging reports on labor and productivity, and word of a plan to aid distressed U.S. homeowners, lifted equities Wednesday

Major U.S. stock indexes closed broadly higher Wednesday, supported by favorable economic data, continuing hopes for lower interest rates, and a report that the Bush administration has worked out a program to help out certain subprime mortgage holders.

On Wednesday, the Dow Jones industrial average finished higher by 196.23 points, or 1.48%, at 13,444.96. The broader S&P 500 index added 22.22 points, or 1.52%, to 1,485.01. The tech-heavy Nasdaq composite index gained 46.53 points, or 1.78%, to 2,666.36.

Activity in the broader market was positive, with 24 shares advancing in price for every eight that declined on the New York Stock Exchange. Nasdaq breadth was 20-10 positive.

Technology stocks were among the biggest gainers Wednesday. Semiconductors got a boost from an upgrade of Intel (INTC) by Thomas Weisel to overweight. Weisel cited 2008 PC

demand, among other things. Computer storage stocks got a push from Western Digital (WDC), which raised its EPS and sales forecasts for its fiscal second quarter.

The housing sector took center stage Wednesday. According to a report on the Wall Street Journal website, the Bush administration is expected to announce Thursday an agreement with the mortgage industry to freeze interest rates for certain subprime mortgages for five years. In addition, the plan includes a provision to fast track some borrowers toward refinanced loans and allow state and local governments to use more tax-exempt bond programs to fund refinancings. The plan comes amid concerns about rising home-foreclosure rates.

Meanwhile, Sen. Hillary Clinton (D-N.Y.), in a television interview and speech, called

for a 90-day moratorium on foreclosures and a 5-year freeze on the interest rates of adjustable rate mortgages (ARMs).

On Wednesday, the U.S. ADP employment survey showed a surge in private payrolls of 189,000, up from 119,000 in October. "The data are much stronger than expected and [are] at odds with the market concerns over the economy," Action Economics says.

The ADP report may give the market a preview to Friday's November employment data. That report is seen as crucial by many market participants looking for signs of a looming recession.

A survey by the Challenger firm found there were 73,100 layoffs announced in November, down 4.6% from a year ago but up 16% from October.

Also Wednesday, U.S. nonfarm productivity spiked 6.3% in the third quarter. Though strong, the productivity figures had been widely expected based on previous GDP reports.

The U.S. ISM services index fell to 54.1 in November from 55.8 in October, just under the 54.5 that markets had expected. The employment component slid to 50.1 from 51.8 in October, while new orders fell to 51.1 from 55.7. Prices paid climbed to 76.5 from 63.5, indicating inflation is in the pipeline. The headline reading remains comfortably above the 50 benchmark point, reflecting an expanding service sector. The report continues to suggest that housing weakness and credit turmoil hasn't dramatically hit the service sector yet, says S&P Economics.

U.S. factory orders rose 0.5% in October, up from a 0.3% increase in September and better than the flat reading markets had expected. October durable orders were revised to a 0.2% decline (previously -0.4%). Excluding transportation, factory orders rose 0.6% from a 1.6% increase the month before. Nondefense capital goods orders excluding aircraft fell 2.0%. Factory shipments climbed 1.0% from a 0.1% gain in September. Inventories rose 0.1%, bringing the inventory-shipment ratio down to 1.23 from 1.24.

While watching the economy closely, investors are also wondering what the Fed has in store for interest rates. Policymakers meet Dec. 11, and every new piece of data could sway their decision. Investors are expecting the Fed to cut interest rates at the meeting to bolster the economy.

Bond-market guru Bill Gross of PIMCO sees more Fed rate cuts ahead. "Stand by for a tumultuous 2008 as the market struggles to move from the shadows back into the sunlight of sounder banking and financial management, accompanied by Fed Funds levels at 3% or lower," he wrote in a Dec. 5 note.

January crude oil futures fell 97 cents to $87.35 per barrel in NYMEX trading Wednesday as a weekly Dept. of Energy report showed crude oil inventories fell by a more than expected 8.0 million barrels to 305.2 million barrels as imports rose fell an average 980,000 barrels. Inventories are still in upper half of their average range for this time of year. OPEC plans an extraordinary meeting Feb. 1 to assess market conditions.

Among the stocks in the news on Wednesday, mortgage insurer MBIA (MBI) saw its shares slump nearly 16% on the session. Action Economics cites a comment from rating agency Moody's that the bond insurer faced greater risk of a capital shortfall than it had previously reported back in November.

Fannie Mae (FNM) will cut its dividend 30% and raise $7 billion through the sale of preferred stock. The mortgage financier is trying to raise cash, in part to prepare for more losses on mortgage debt.

Comcast (CMCSA) shares slumped after the cable TV giant said it now expects revenue generating units (RGUs) to increase by about 6 million to 57 million in 2007, vs. previous guidance of about 6.5 million additions, reflecting an increasingly challenging economic and competitive environment.

US Airways (LCC) reported revenue passenger miles in November fell 4.6% from a year ago, to 4.7 billion. Total capacity, of 6.1 billion available seat miles, was also down 4.6%.

Jones Soda's (JSDA) chairman and chief executive, Peter van Stolk, will resign at the end of the year as planned.

Western Union (WU) announced a $1 billion stock buyback program, adding to $300 million in share repurchases that it has yet to complete.

MGM Mirage (MGM) set a 20-million share buyback program.

Panera Bread (PNRA) reported November sales for comparable bakery-cafes were up 3.2%.

European stocks finished higher Wednesday. In London, the FTSE 100 index was up 2.83% to 6,493.80. In Paris, the CAC 40 index rose 2.02% to 5,659.07. Germany's DAX index moved 1.74% higher to 7,944.77.

Indexes at major Asian markets were mostly positive as well. Japan's Nikkei 225 index rose 0.83% to 15,608.88. In Hong Kong, the Hang Seng index gained 1.61% to 29,345.45. The Shanghai composite index jumped 2.58% to 5,042.65.

Treasury market

Treasuries fell, pressured by a big increase in the ADP employment report that drove speculation of strong November payrolls data to be released this Friday. Stock market strength also contributed to a bearish backdrop for bonds. The 10-year note fell 07/32 to 102-22/32 for a yield of 4.92%. The 30-year bond tumbled 24/32 to 109-27/32 for a yield of 4.40%.

Before it's here, it's on the Bloomberg Terminal.