Wall Street lifts on Bank of America rescue

January 17, 2009

, NEW YORK, Jan 17 – US stocks rallied Friday after a US government rescue injection of 20 billion dollars into Bank of America helped ease fears about a further deterioration of the banking sector.

The Dow Jones Industrial Average lifted 89.12 points (1.09 percent) to 8,301.61 at 1555 GMT, a day after a small gain for blue chips ended a six-session losing streak.

The Nasdaq composite advanced 12.20 points (0.81 percent) to 1,524.04 and the Standard & Poor\’s 500 broad-market index added 7.59 points (0.90 percent) to 851.33.

Market action came amid intense focus on the banking sector after the US government extended a new lifeline to Bank of America, injecting another 20 billion dollars in capital and guaranteeing 118 billion dollars in shaky assets to help it weather the ongoing financial crisis.

Patrick O\’Hare at Briefing.com said "the bullish bias seen today has some questionable underpinnings" with Bank of America still facing troubles.

"These measures have seemingly removed a worst-case scenario for equity holders, but they show just what a mess Bank of America has managed itself into," he said.

Bank of America shares fell 2.9 percent to 8.08 dollars with current shares diluted by the government capital injection.

But Citigroup rallied 6.5 percent to 4.03 dollars at the troubled bank reported a hefty 8.29 billion dollar loss in the fourth quarter and said it would split into two groups to help restore profitability.

Al Goldman at Wachovia Securities said that "the market was oversold and ready for a rally" after a rocky start to 2009.

Additionally, he said there was a better mood about the change at the White House as Barack Obama was set for inauguration Tuesday to replace President George W. Bush.

"No matter how one feels about President Bush, most Americans are pleased to see him go and Obama to arrive. This could provide an emotional uplift," Goldman said.

Fred Dickson at DA Davidson & Co. said investor reaction to earnings announcements "has been a little better than expected given the generally bad news delivered by these companies in terms of fourth quarter earnings and warnings regarding deteriorating business conditions in the current quarter."

Among other stocks in focus, Intel jumped 2.5 percent to 13.62 dollars after the world\’s biggest chipmaker reported a 90 percent drop in profits that was in line with lowered forecasts.

General Motors added 0.77 percent to 3.95 dollars after the Wall Street Journal reported its bondholders formed a committee to negotiate terms of a debt-for-equity swap, a key requirement of the automaker\’s loan from the US government.

Bonds fell sharply. The yield on the 10-year US Treasury bond rose to 2.339 percent from 2.201 percent Thursday and that on the 30-year bond jumped to 2.955 percent against 2.895 percent. Bond yields and prices move in opposite directions.

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