U.S. Stocks Rise on Central Bank Actions, Short-Sale Crackdown

By Elizabeth Stanton

Sept. 18 (Bloomberg) -- U.S. stocks rose as the world's biggest central banks planned to pump $247 billion into the financial system and regulators cracked down on abusive speculation against bank shares.

Washington Mutual Inc., the largest U.S. savings and loan, surged 20 percent on speculation the nation's largest banks will bid for parts of WaMu. Citigroup Inc. and Bank of America Corp. climbed more than 5 percent as the Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world. Kraft Foods Inc. jumped 2.4 percent after the biggest U.S. foodmaker was named as the replacement for American International Group Inc. in the Dow Jones Industrial Average.

``Pessimism is very deep right now, but oftentimes that represents a great opportunity for investors to get back into the market,'' Michael Koskuba, a New York-based fund manager at Victory Capital Management Inc., told Bloomberg Television. Victory Capital oversees $66 billion. ``Hopefully we're getting to the point now where confidence will come back into the markets.''

The Standard & Poor's 500 Index jumped 20.94, or 1.8 percent, to 1,177.33 at 9:38 a.m. in New York a day after the benchmark index for U.S. equities tumbled 4.7 percent. The Dow added 145.34, or 1.4 percent, to 10,755. The Nasdaq Composite Index increased 43.87 to 2,142.72. Nine stocks advanced for each that fell on the New York Stock Exchange.

The S&P 500, which has fallen 4.7 percent twice this week, rebounded from its lowest level since May 2005 after the Fed today said it authorized central banks to auction funds to ``to address the continued elevated pressures in U.S. dollar short- term funding markets.'' The Securities and Exchange Commission stiffened regulations against manipulative short-selling after the routs in AIG and Lehman Brothers Holdings Inc.

$3.6 Trillion Lost

About $3.6 trillion of market value has been erased from global stocks this week, triggered by the bankruptcy filing by Lehman, once the fourth-largest U.S. securities firm.

Finance officials have struggled to restore confidence in markets as concern mounted more banks will follow Lehman Brothers Holdings Inc. into bankruptcy. The cost to hedge against losses on U.S. government debt climbed to a record yesterday, the U.K. government was forced to sponsor a rescue of mortgage lender HBOS Plc and Russia poured money into its banks.

Washington Mutual rose 42 cents to $2.43. JPMorgan Chase, Citigroup, Bank of America and Wells Fargo may be interested only in pieces of WaMu, three people with knowledge of the discussions said, who asked not to be identified because the talks are private.

Morgan Stanley shares fell for an eighth straight day as the securities firm weighed a merger with a commercial bank. Talks about a deal with Wachovia Corp. have ``advanced,'' CNBC reported. Morgan sank almost 7.1 percent, after plunging 42 percent this week following the bankruptcy of smaller rival Lehman Brothers Holdings Inc.

The SEC's new rules on short sales force traders to borrow shares before selling them short and make it a fraud for investors to lie to their broker about locating stock to close positions. The SEC may also require hedge funds to disclose their short-sale positions and plans to subpoena the funds' communication records in an effort to stem turmoil in stock markets.

Economic Reports

Stocks rose even after the Labor Department reported that initial jobless claims in the U.S. unexpectedly rose last week, led by a jump in Louisiana in the wake of Hurricane Gustav. The number of Americans filing first-time claims for unemployment benefits increased by 10,000 to 455,000 in the week ended Sept. 13. The number of people staying on rolls fell to 3.478 million, down from a five-year high.

The index of U.S. leading economic indicators probably fell in August for a third month, signaling the growth outlook darkened even before the latest collapse in financial markets, economists said. The index, due at 10 a.m. from the New York- based Conference Boars, may have dropped 0.2 percent, according to the average economist estimate.

Also at 10 a.m., the Federal Reserve Bank of Philadelphia's factory gauge is projected to come in at minus 10, following a reading of minus 12.7 in August.

U.S. stocks tumbled yesterday as bank lending seized up in the wake of the government's takeover of American International Group Inc., raising concern that more of the nation's biggest financial companies will fail. The 26 percent drop in the S&P 500 since its October peak erased half its gain from the five- year bull market that began in 2002.

The S&P 500 is poised to post its first yearly retreat since 2002 after global banks racked up $519 billion in credit losses and asset writedowns stemming from the first nationwide decline in home prices since the 1930s.

To contact the reporter on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net