The stock market capped a volatile week with sharp gains Friday as oil prices tumbled and Federal Reserve Chairman Ben S. Bernanke predicted that inflation would moderate. The Dow Jones industrial average rose nearly 200 points.
Although the rally was partly attributed to Bernanke's prediction, delivered at a Fed symposium in Wyoming, that inflation will ease this year and next, the Fed chief cautioned that the inflation outlook remained "highly uncertain."
But a sharp decline in oil prices was unambiguously good for stocks. Crude futures plunged $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange, erasing a more than $5-a-barrel rally Thursday.
Speculation that Lehman Bros. Holdings could be sold helped buoy the financial sector and the overall market. Analysts warned this week that the investment bank could book large write-downs for bad debt. But reports Friday that Korea Development Bank was considering buying the company sent investors rushing for the stock.
Lehman closed up 69 cents, or 5%, at $14.41 after climbing as high as $15.93. An index of financial stocks jumped 3.1%.
But Freddie Mac shares slipped after billionaire investor Warren Buffett told CNBC that Freddie and fellow mortgage giant Fannie Mae "don't have any net worth."
The Dow surged 197.85 points, or 1.7%, to 11,628.06.
The Standard & Poor's 500 index rose 14.48 points, or 1.1%, to 1,292.20, and the Nasdaq composite index climbed 34.33 points, or 1.4%, to 2,414.71.
The Russell 2,000 index of smaller-company stocks jumped 12.35 points, or 1.7%, to 737.60.
Advancing issues outnumbered decliners by about 5 to 2 on the New York Stock Exchange.
The run-up Friday significantly reduced the losses for the week recorded by the major stock indexes: 0.3% for the Dow, 0.5% for the S&P 500 and 1.5% for the tech-heavy Nasdaq.
Government bond yields rose along with stocks. The yield on the benchmark 10-year Treasury note rose to 3.87% from 3.82% late Thursday.
The dollar advanced against other major currencies. Gold futures fell $5.60 to $827.40.
John Massey, senior portfolio manager at AIG SunAmerica Asset Management, cautioned against making too much of the market's moves, given light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost a total of more than 300 points in the first two days of the week before ending moderately higher Wednesday and finishing mixed Thursday.
