NEW YORK: Financial markets grew more upbeat yesterday as congressional leaders said they had struck an agreement in principle on the government’s plan to revive the crippled financial system. The Dow Jones industrial average rose as much as 300 points on optimism about the plan, and demand for short-term, safe-haven assets eased slightly as some investors bet that a deal would help unclog credit markets.
Stock market investors clearly were more upbeat after lawmakers said they would present the $700 billion plan to the Bush administration and hoped for a vote by both houses of Congress within days.
The statements out of Washington came after Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged lawmakers Tuesday and Wednesday to quickly sign off on the plan, which they contend would help prop up the economy by removing billions of dollars in risky mortgage-related assets from financial firms’ balance sheets. Distrust of the financial companies that hold these assets has led to a seizing up of the credit markets, which in turn threatens the overall economy by making it harder and more expensive for businesses and consumers to borrow money.
Bush highlighted what he sees as the urgency in a national address Wednesday night. Still, White House officials have yielded to a key demand by congressional leaders, agreeing to include widely supported limits on pay packages for executives whose companies benefit from any deal. Major elements are still being worked out, including how to phase in the mammoth cost of the package and whether the government will get an ownership stake in troubled companies.
In early afternoon trading, the Dow Jones industrial average rose 247.15, or 2.28 percent, to 11,072.32. The Dow fell 563 points, or 4.95 percent, in the first three sessions this week so yesterday’s buying didn’t come as a surprise.
Broader stock indicators also rose yesterday. The Standard & Poor’s 500 index advanced 28.54, or 2.41 percent, to 1,214.41, and the Nasdaq composite index rose 45.75, or 2.12 percent, to 2,201.43. Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to a relatively light 680.9 million shares.
The dollar was mixed against other major currencies, while gold prices fell. To help ease credit market strains, the Federal Reserve early yesterday issued more than $20 billion in collateral such as Treasury bills in exchange for dollars to help meet demand for safe assets.
Oil jumps
US crude traded up $2.23 at $107.96 a barrel by 2:33 p.m. EDT, while London Brent crude rose $2.13 to $104.58 a barrel.
Concerns that the weakening US economy would further undermine energy demand from the world’s biggest consumer had helped crude recoil from a record high over $147 a barrel hit in the middle of July.