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Wall Street opens higher, extending rally

March 20, 2009|Times Staff And Wire Reports

Commodity prices surged Thursday, pushing oil above $50 a barrel, in reaction to the Federal Reserve's plans to buy massive new amounts of mortgage bonds and Treasury securities.

Meanwhile, the stock market gave up much of its advance of the day before as investors reassessed the bond-purchase announcement. The Dow Jones industrial average lost 85 points.

On Wednesday, the central bank said it would increase its planned purchases of bonds by more than $1 trillion in an effort to stimulate the economy by lowering long-term mortgage rates.

But the purchases, coupled with other government moves to deal with the recession and financial crisis, risk a revival of inflation. That concern pounded the dollar Thursday, with the euro surging to $1.366, up from $1.342 on Wednesday and $1.298 on Monday.

The commodity market also smells higher inflation down the road. In addition, raw materials may be attracting buyers who figure the Fed's attempts to drive down long-term interest rates will spur an economic recovery, which would mean higher demand for raw materials. And with a weaker dollar, commodities priced in the U.S. currency get cheaper for foreign buyers.

Near-term oil futures jumped $3.47 to $51.61 a barrel. In mid-February they traded as low as $34.

The Reuters/Jefferies CRB index of 19 major commodities was up 4.9% to a six-week high of 224.38. Every commodity in the index was higher except nickel.

Gold, which had rocketed in late electronic trading Wednesday after the Fed's decision, built on those gains. The metal ended in New York trading Thursday at $958.30 an ounce, up $69.60 from Wednesday's close and about $20 higher than the electronic-trading quote late Wednesday.

"This Fed announcement [Wednesday] has got everything on fire," said Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines.

The stock market rose early in the session Thursday after the government reported that initial jobless claims fell last week, although the total number of people receiving benefits set a new record for the eighth straight week.

But share prices weakened as investors digested the potential downsides of the Fed's effort, including inflation and the possibility that any boost to growth might take a while.

"After the initial euphoria surrounding the surprise announcement [Wednesday], there's a little more analysis of this going on and it's leading to some questions," said Todd Salamone, senior vice president of research at Schaeffer's Investment Research.

The Dow fell 85.78 points, or 1.2%, to 7,400.80, a day after gaining 90 points.

The broader Standard & Poor's 500 index fell 10.31 points, or 1.3%, on Thursday to 784.04, while the Nasdaq composite index fell 7.74 points, or 0.5%, to 1,483.48.

Even after Thursday's slide, the Dow is up 13% and the S&P 500 is up 16% since the indexes hit 12-year lows March 9.

Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where volume remained high.

Long-term Treasury yields, which plunged Wednesday on the Fed news, rebounded modestly. The 10-year T-note rose to 2.59% from 2.53% late Wednesday.

Financial stocks, which led the rally that began last week, couldn't hold their gains and dragged the market lower. Some traders were selling to lock in profits after several of those stocks doubled or tripled in a matter of weeks.

Citigroup fell 16%, while JPMorgan Chase dropped 8%.

General Electric rose early on as much as 10% on its forecast of a profitable first quarter and 2009 for its struggling finance unit. But the stock retreated with the rest of the market, finishing down 1.8%.

Shares of energy companies rose along with oil. Occidental Petroleum climbed 3.8%, while an S&P energy index rose 1.4%.

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