Fed’s efforts boost sales on stock market

Reports of business deals heartened investors.

NEW YORK (AP) — Stocks jumped Wednesday as investors interpreted selling in the Treasury market and an increase in borrowing by banks as signs that the Federal Reserve’s efforts to loosen up the credit market might be working.

The 3-month Treasury bill, which earlier in the week drew massive buying as investors sought the safety of short-term government assets, fell Wednesday, an indication that stocks are no longer seen as risky as they were just a few days ago. The selling boosted its yield to 3.66 percent, up from 3.59 percent late Tuesday and Monday’s low of 2.51 percent.

“It gives the market a little comfort that it’s not all about buying risk-free securities,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “There’s less of a flight to quality. ... In my mind, the pullback in the stock market is entirely due to what’s going on in the credit market. The fundamentals have been good. Valuations are reasonable. It’s just the fear of the unknown in terms of the credit market.”

Wall Street, which has been angling for the Fed to help ease the credit crunch by cutting the benchmark federal funds rate, has been knocked down several rungs in recent weeks by worries about lending troubles crimping economic and corporate growth.

But giving some investors reason to believe the steps the Fed has already taken may be enough, the nation’s four biggest banks — Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Wachovia Corp. — said they each borrowed $500 million from the Federal Reserve’s discount window. Last Friday, the Fed lowered its discount rate, or the rate it charges commercial banks, by a half-percentage point.

Investors were also heartened by reports of business deals. Casino operator MGM Mirage Inc. said it was selling half of its Las Vegas Strip project, CityCenter, to Dubai World, a holding company for the Persian Gulf city-state, for a $5.1 billion investment. Meanwhile, Nymex Holdings Inc. Chairman Richard Schaeffer said the commodities exchange has been meeting with suitors about a potential combination. Mergers and acquisitions, especially by private equity firms, had been one of the market’s biggest drivers this year.

Here’s proof

In late afternoon trading, the Dow Jones industrial average rose 92.02, or 0.70 percent, to 13,182.88.

Broader stock indicators also jumped. The Standard & Poor’s 500 index rose 9.90, or 0.68 percent, to 1,457.02, while the Nasdaq composite index gained 22.96, or 0.91 percent, to 2,544.26.

As short-term government security prices fell, so did their longer-term counterparts. The 10-year Treasury note’s yield climbed to 4.62 percent from 4.59 percent late Tuesday.

Also calming investors, the Fed made a relatively small repurchase of $2 billion, in which it buys that amount in collateral from dealers, who then deposit the money into commercial banks.

The Fed funds rate, the rate banks charge each other for loans, fell to 4.88 percent after opening at 5.125 percent. But traders who bet on the Fed’s next move were still pricing in an interest rate cut at its next meeting Sept. 18. Some speculate the central bank will lower rates before then.

Wall Street’s sentiment could turn if it doesn’t get that rate cut — which is a distinct possibility, Wren said.