Video: Wall Street’s view

updated 9/4/2007 10:02:11 AM ET 2007-09-04T14:02:11

Wall Street closed out another erratic week with a big gain Friday after investors took comments from President Bush and Federal Reserve Chairman Ben Bernanke as reassuring signs Wall Street won’t be left to deal with problems in the mortgage and credit markets on its own.

Investors balked early in Friday’s session when comments from Bernanke didn’t indicate a cut in the benchmark federal funds rate was imminent. However, they moved past some of their initial disappointment and appeared to concentrate on comments that the Fed would step in if needed.

Bernanke, speaking at the Fed’s annual conference in Jackson Hole, Wyo., said the central bank will “act as needed” to prevent the credit crisis from hurting the national economy.

The major indexes fluctuated but by midday extended their gains after President Bush spoke about details of a plan to help borrowers facing trouble paying their mortgages.

“You’ve got all the speeches working for the market here,” said Michael Church, portfolio manager at Church Capital Management in Philadelphia. “What we’ve seen in the last few weeks is that Ben Bernanke and the Federal Reserve are paying attention to what’s going on. They will help correct the credit markets. For now, we’re in a trading range and we have to sort through this mess.”

According to preliminary calculations, the Dow rose 119.01, or 0.90 percent, to 13,357.74.

Broader stock indicators also rose. The Standard & Poor’s 500 index rose 16.35, or 1.12 percent, to 1,473.99, and the Nasdaq composite index rose 31.06, or 1.21 percent, to 2,596.36.

Bond prices fell. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.53 percent from 4.51 percent late Thursday. The U.S. bond market closed early ahead of the holiday weekend, and will be closed Monday along with the stock markets.

Since the stock market started tumbling in late July on fears that problems in mortgage and corporate lending would lead to a credit freeze and hurt the economy, the Fed has injected tens of billions of dollars into the banking system and lowered its discount rate — the charge on its loans to commercial banks. But the Fed hasn’t yet said it will lower the benchmark federal funds rate, and Wall Street’s uncertainty over what the central bank will do next has kept the markets volatile. The Fed’s next meeting is Sept. 18 and some investors had expected the central bank might hint at or even go through with a rate cut before then.

Bush’s comments that the nation’s economy can “weather any turbulence” in what he termed a period of transition for the financial markets appeared to help reassure investors. He outlined proposals to assist borrowers in trouble from a pullback in the housing market and credit problems.

Economic news, as Bernanke indicated Friday, appeared less relevant than normal as investors remained focused on upheaval in the credit market and mortgage concerns.

Major Market Indices

The Commerce Department reported on personal income and spending and the core personal consumption expenditures deflator, one of the Fed’s preferred gauges of inflation. Personal incomes and spending edged up by 0.5 percent and 0.3 percent, respectively, and year-over-year core PCE stayed at 1.9 percent — within the Fed’s comfort range.

The Commerce Department also said orders to factories jumped by 3.7 percent in July, topping a 3.3 percent increase that had been expected. The rise, which came after three months of modest gains, followed an 11 percent jump in demand for transportation goods, including the biggest increase in orders for cars in more than four years.

Also, the Chicago purchasing managers index rose to 53.8 in August from 53.4 in July; the index, which measures manufacturing in the Midwest, is seen as a precursor to the Institute for Supply Management index, to be released on Tuesday.

Church said the market was helped by Friday’s economic figures as well as a stronger-than-expected reading on second-quarter gross domestic product released Thursday.

But despite relatively upbeat economic data, it is becoming increasingly clear that the Fed is going to have to lower interest rates to help the credit market turmoil from dragging down the economy, said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles.

“Volatility is going to be high in the coming weeks because the Fed’s not sure what is going to happen due to these financial market interruptions and investors can’t be sure either,” Higgins said.

Advancing issues outnumbered decliners by about 7 to 1 on the New York Stock Exchange, where volume came to a light 1.39 billion shares compared with 1.03 billion shares traded Thursday. Trading in late August often is light as investors take end-of-summer vacations.

The Russell 2000 index of smaller companies rose 9.75, or 1.25 percent, to 792.86.

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