updated 8/22/2008 7:27:29 AM ET 2008-08-22T11:27:29

Wall Street finished mixed Thursday after investors largely shrugged off a jump in oil prices and focused instead on a bullish call on Lehman Brothers Holdings Inc. that eased worries about the financial sector.

Major Market Indices

Stocks closed off their lows of the session after a Ladenburg Thalmann analyst raised his rating on Lehman to “buy,” saying he believes the nation’s fourth-biggest investment bank has become a hostile takeover candidate. That call helped ease concerns about that company as well as the financial sector, which has been hit by a spike in bad mortgage debt.

The partial recovery in financials as well as gains by energy producers themselves helped contain investors’ anxiety over a jump in oil of more than $5 a barrel. Prices rose as investors questioned whether tensions with Russia would disrupt energy shipments from the world’s second-largest oil producer. Often an uptick in oil will fan Wall Street’s fears of inflation.

“It’s remarkable how well the market has held up,” said Quincy Krosby, chief investment strategist for The Hartford, referring to the performance of stocks in the face of a jump in oil. She said the gains by the energy sector helped corral selling pressure on a day of light volume, which can lead to volatility.

The Dow Jones industrial average rose 12.78, or 0.11 percent, to 11,430.21. It was the second straight session of moderate gains for the blue chips after heavy losses the first two days of the week.

Broader stock indicators ended mixed Thursday. The Standard & Poor’s 500 index rose 3.18, or 0.25 percent, to 1,277.72, and the Nasdaq composite index fell 8.70, or 0.36 percent, to 2,380.38.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.83 percent from 3.80 percent late Wednesday.

Gold prices jumped as the dollar moved lower against other major currencies.

Light, sweet crude surged $5.62 to settle at $121.18 a barrel on the New York Mercantile Exchange. Stocks recovered after oil retreated from a session high of $122.04 — a trading level not seen since Aug. 4.

While oil prices remain well off their July 11 high of $147.27, any rebound can be worrisome because inflation readings this week and last week showed prices rose for consumers and businesses at a faster pace than expected.

Investors responded to Thursday’s climb in oil by sending shares of energy companies higher. Exxon Mobil Corp. and Chevron Corp. were among the strongest performers of the 30 stocks that make up the Dow industrials. Exxon rose $1.54, or 2 percent, to $80.35, while Chevron rose $2.06, or 2.4 percent, to $88.52.

But the rise in oil also weighed on some sectors, such as airlines. United Airlines parent UAL Corp. fell $1.07, or 8.6 percent, to $11.33, while Continental Airlines Inc. fell 82 cents, or 5.4 percent, to $14.34.

With the focus on oil and financials, investors looked past most economic readings. The Philadelphia Fed said regional manufacturing activity was negative for the ninth straight month. The Conference Board’s leading economic indicators report, which is designed to predict economic activity in the next three to six months, showed its largest drop in a year in July.

Investors also seemed unimpressed by a larger-than-expected decrease in weekly unemployment claims from newly laid-off workers. The Labor Department said claims fell by 13,000 to 432,000 last week. But the four-week moving average rose to 445,750, a nearly seven-year high.

A shaky job market has been slamming consumers who also face a tighter credit climate, rising costs and falling home prices. That is troubling to investors as consumer spending accounts for more than two-thirds of U.S. economic activity.

“All three reports tend to indicate that we’re bottoming out but that there is no real end in sight and that’s what I think the market has to get used to,” said Doug Roberts, chief investment strategist at Channel Capital Research.

The fluctuations of oil and financials again dictated the mood on Wall Street Thursday. A slew of analysts have been downgrading banks and brokerages over the past few weeks, and late Wednesday, a Citigroup analyst lowered his third-quarter estimates for Lehman Brothers, Goldman Sachs Group Inc. and Morgan Stanley. He predicted Lehman will write down its assets by $2.9 billion, that Goldman will write down $1.8 billion and that Morgan will write down $1.7 billion.

But the Ladenburg Thalmann analyst’s note helped the sector, by arguing that Lehman Brothers’ management values the company at a premium and would be willing to sell at the right price.

Lehman ended down 1 cent at $13.72, while Goldman Sachs fell $1.83 to $156.42 and Morgan Stanley fell 34 cents to $37.06.

The shifting sentiment came a day after fresh worries emerged about the possibility of a government bailout of government-chartered mortgage companies Fannie Mae and Freddie Mac. Such a move could wipe out shareholder equity.

Fannie and Freddie ended mixed after falling more than 20 percent Wednesday. Fannie rose 45 cents, or 10 percent, to $4.85, while Freddie fell 9 cents, or 2.7 percent, to $3.16.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to a light 3.94 billion shares compared with 4.45 billion shares traded Wednesday.

The Russell 2000 index of smaller companies fell 6.35, or 0.87 percent, to 725.25.

Overseas, Japan’s Nikkei stock average fell 0.77 percent. Britain’s FTSE 100 slipped 0.03 percent, Germany’s DAX index fell 1.28 percent, and France’s CAC-40 fell 1.40 percent.

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