US stocks rallied on Thursday after a major credit rating agency said the end to subprime-related write-downs is in sight, triggering a rebound in financial shares. Standard & Poor's said write-downs for large financial institutions are likely past the halfway mark, soothing investors' anxiety about the latest credit market fallout and increasing the allure of riskier assets.
Standouts in the financial sector included shares of US home finance companies Fannie Mae, up more than 9 percent, and Freddie Mac, up more than 7 percent. A Dow Jones index of home builders' shares gained 5.9 percent after Rep. Barney Frank, chairman of a US House Financial Services Committee, unveiled a mortgage bailout plan aimed at distressed borrowers who are grappling with declining home values.
In a sign that investors were willing to take on more risk, demand for safe-haven US Treasury bonds fell sharply after an auction of 10-year government notes drew weak bidding.
"My gut is that the whole turnaround sort of started when that S&P story came out and said they see the end of write-downs for major financial institutions. That seems to have been what turned the market around today," said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.
The Dow Jones industrial average gained 35.50 points, or 0.29 percent, to 12,145.74. The Standard & Poor's 500 Index increased 6.71 points, or 0.51 percent, to 1,315.48. The Nasdaq Composite Index rose 19.74 points, or 0.88 percent, to 2,263.61. Freddie Mac jumped 7.6 percent to $21.30, while Fannie Mae's shares climbed 9.2 percent to $22.97. A slight pullback in oil prices from Thursday's record high of $111 a barrel improved investors' sentiment along with a slight recovery in the dollar.
"A lot of these markets seem to be linked lately. I'm seeing the dollar strengthen, crude weaken, equities are doing better and bonds are selling off," Clark said. Shares of Exxon Mobil rose 1.3 percent to $87.05. Thursday's trading was volatile. All three indexes - at session lows - were down about 2 percent and up about 1 percent at session highs.
At the open, stocks tumbled after an unexpected plunge in February US retail sales fuelled concerns about a consumer-led recession and a fund affiliated with Carlyle Group - Carlyle Capital Group - said lenders were likely to seize its assets after it defaulted on about $16.6 billion of debt.
Trading was active on the New York Stock Exchange, with about 1.8 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.47 billion shares traded, above last year's daily average of 2.17 billion. Advancing stocks outnumbered declining ones on the NYSE by about 18 to 13 and by about 3 to 2 on the Nasdaq.