Dow Industrials end trading day up 150-plus

updated 6:49 p.m. ET July 8, 2008

NEW YORK - Wall Street finished sharply higher Tuesday as oil prices dropped for the second straight day and investors were encouraged by the possibility of more help for the ailing financial system. The Dow Jones industrials gained more than 150 points, and all the major indexes were up more than 1 percent.

Crude prices tumbled $5.33 to settle at $136.04 a barrel on the New York Mercantile Exchange, bringing oil’s two-day drop to more than $9. Other commodities also pulled back.

Speeches by Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and JPMorgan Chase & Co. Chief Executive Jamie Dimon gave the market some reassurance about the financial sector. Investors have been concerned this week about the health of government-backed lenders Fannie Mae and Freddie Mac; the two companies’ troubles helped send prices lower on Monday, but they also helped lead the rebound Tuesday.

The market was relieved to hear Bernanke say in a speech the central bank might extend its lending efforts to investment banks; the Fed began allowing the big companies to borrow after the near-collapse of Bear Stearns Cos. earlier this year. At the Federal Deposit Insurance Corp.’s forum on mortgage lending, where Bernanke spoke, Dimon said “the future is very, very bright,” but that “I do think we have some very serious issues to face.”

Paulson, meanwhile, made an upbeat assessment of the government’s efforts to prevent the volume of mortgage foreclosures that touched off the credit crisis last year, although he also said he expects foreclosures to continue.

The Treasury secretary also said he was pleased at steps taken by Freddie Mac and Fannie Mae to raise money: “Fresh capital will strengthen their balance sheets and allow them to provide additional mortgage capital, as they balance their responsibilities to their mission and to their shareholders.”

All that helped stocks stage a late-afternoon rebound after choppy trading throughout most of the session.

“A lot of money is flowing into the previous laggards,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research, pointing to financials, health, and housing stocks. “It really seems like an oversold bounce.”

The Dow rose 152.25, or 1.36 percent, to 11,383.21, after moving in and out of positive territory. It was the biggest gain for the blue chips since June 13.

News moving the markets Oil rebounds after missile tests in Iran Alcoa’s second-quarter profit drops 24 percent

The advance left the Dow down 19.6 percent from its October high — just shy of the 20 percent threshold that signals a bear market. The Dow and the Standard & Poor’s 500 index have at times moved into bear territory in recent weeks, and it’s likely that fluctuations will again take them there until Wall Street is able to put together a sustainable rally.

Broader stock indicators rose as well. The S&P 500 rose 21.39, or 1.71 percent, to 1,273.70, while the Nasdaq composite index rose 51.10, or 2.28 percent, to 2,294.42.

Bond prices edged higher Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.89 percent from 3.91 percent late Monday.

A drop in commodities prices appeared to help quiet some of Wall Street’s fears about inflation. The drop came as a possible signal that a slowing global economy is damping demand for energy and raw materials. Gold, silver, copper, corn and most other agriculture futures sank as oil fell. A rise in the dollar rose against other major currencies also made commodities less expensive.

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Oil rebounds after missile tests in Iran   Euro central bank chief: Inflation will linger Alcoa’s second-quarter profit drops 24 percent   Gas-saving products boosted by fuel prices Fed to crack down on shady lending Dow Industrials end trading day up 150-plus Consumers borrow mostly on credit cards Pending home sales fall 4.7 percent Wall Street faces the bears of summer Crumbling dollar resonates through economy Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: