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Banks, retailers pace stocks

Outside investors inject cash into Merrill Lynch, and hopes rise for healthy holiday sales. The Dow gains 98.

December 25, 2007|From Times Wire Services

Stocks rose sharply Monday, boosted by news that another Wall Street firm was getting a multibillion-dollar capital injection and hopes of a stronger-than-expected holiday season for retailers. The Dow Jones industrial average rose nearly 100 points.

Financial shares in the Standard & Poor's 500 index added 1.8% after Merrill Lynch said it was receiving as much as $6.2 billion from Singapore's government-controlled investment fund, Temasek Holdings, and U.S.-based money manager Davis Selected Advisors.

The proceeds from the deals were expected to cushion Merrill's expected mortgage-related write-downs for the fourth quarter.

Retailers in the S&P 500 rose 1.6%, lifted by news that an activist investor had increased his stake in Target as well as speculation about how the industry's holiday season would end.

Monday's rally left some investors hoping for a year-end surge that could extend into 2008. On Friday, the Dow rose more than 200 points.

"The market is tacking on strong gains from Friday, a last-minute Santa Claus rally," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners. "The Merrill Lynch investment adds to stability in the market. I look at it as a vote of confidence on the part of foreign investors."

The Dow rose 98.68 points, or 0.7%, to 13,549.33.

Broader market gauges also advanced. The Standard & Poor's 500 index climbed 11.99 points, or 0.8%, to 1,496.45, and the Nasdaq composite index rose 21.51 points, or 0.8%, to 2,713.50.

The Russell 2,000 index of smaller-company stocks jumped 8.79 points, or 1.1%, to 794.39.

Advancing issues led decliners by 3 to 1 on the New York Stock Exchange. Volume was very light during the abbreviated Christmas Eve session. Financial markets will be closed today for the holiday.

Yields on government bonds rose along with stock prices. The yield on the benchmark 10-year Treasury note climbed to 4.21% from 4.17% late Friday. The dollar was mixed against other major currencies, while gold prices rose.

Oil prices also rose. Crude futures gained 82 cents to close at $94.13 on the New York Mercantile Exchange.

Shares of Merrill Lynch initially gained after the announcement that it was selling a stake in itself to strengthen its balance sheet. But they slumped after it was disclosed that the new investors were paying only $48 a share, 14% less than Merrill's closing price Friday.

The stock closed down $1.64, or 3%, at $53.90.

The nation's largest brokerage also sold most of its commercial finance unit to General Electric. GE rose 39 cents, or 1.1%, to $37.53.

Among other financial shares, insurer American International Group jumped $1.65, or 2.8%, to $59.98. Student lender SLM surged $2.21, or 11%, to $22.06. Citigroup climbed 74 cents, or 2.4%, to $30.98.

Target added $1.79, or 3.5%, to close at $52.47. Investor William Ackman said he increased his stake in the retailer to 10% from 9.6% and held talks with management about boosting the stock price.

Wal-Mart Stores gained 53 cents, or 1.1%, to $48.74.

* Alcoa rose 66 cents, or 1.8%, to $37.01. The aluminum maker agreed to sell its packaging and consumer segment, which includes Reynolds, to New Zealand-based Rank Group for $2.7 billion.

* United Rentals climbed 79 cents, or 3.3%, to $18.70 after the rental equipment company said it would accept a $100-million "breakup" fee from Cerberus Capital Management after a court said the private equity firm was not obligated to complete a $4-billion buyout.

* FedEx slid $2.16, or 2.3%, to $92.13. The package carrier may be hit with a tax penalty of $319 million or more for designating some truck drivers as independent contractors.

* CME Group, the operator of futures market Chicago Mercantile Exchange, slipped $16.75, or 2.4%, to $694. A consortium of Wall Street banks and hedge funds plans to launch a futures exchange in 2008.

* Teva Pharmaceutical Industries rose $1.31, or 2.9%, to $46.48. Teva launched a generic version of Protonix, a heartburn drug by Wyeth, and raised its 2007 profit forecast.

Wyeth fell $1.41, or 3%, to $45.45 after U.S. regulators delayed its experimental drug for preventing bone loss.

* McAfee rose 35 cents at $38.47. The security software maker restated its financial reports, taking an additional $137.4-million pretax expense for stock-based compensation.

* Overseas, key stock indexes rose 1.8% in Hong Kong, 0.7% in Britain and 0.2% in France. Markets were closed in Japan and Germany.

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