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Stocks surge on relief over unemployment, banks

STOCKS soared yesterday as Wall Street cheered the positive news it had been hoping for: Job losses slowed in April and big banks don't need as much capital as some had feared.

All the major indicators rose more than 1 percent, including the Dow Jones industrial average, which jumped 165 points.

Bank shares helped drive the gains following the release of results from the government's "stress tests" late Thursday. Energy stocks surged as oil prices jumped on the improving economic outlook.

Wall Street welcomed the Labor Department's report that employers cut 539,000 jobs last month - the fewest in six months and much less than the 620,000 analysts had expected.

The jobs report also said the unemployment rate climbed to 8.9 percent - the highest since 1983 - from 8.5 percent as many businesses refrained from hiring amid an uncertain economic outlook.

"The news is never all good when you've hit bottom," said Alan Skrainka, chief market strategist at Edward Jones. "But that doesn't change our view that the rate of decline is slowing."

The Dow rose 164.80, or 2 percent, to 8,574.65. The Standard & Poor's 500 index rose 21.84, or 2.4 percent, to 929.23, and the Nasdaq composite index rose 22.76, or 1.3 percent, to 1,739.00.

For the week, the Dow is up 4.4 percent for the week and down only 2.3 percent for 2009. It was the eighth gain for the index in 9 weeks. The S&P 500 index is up 5.9 percent, while the Nasdaq composite index is up 1.2 percent.

The market has been surging since the Dow and the S&P 500 index hit 12-year lows on March 9. The S&P 500 index is up 37.4 percent, while the Dow is up 31 percent as worries about bank failures ease and following better-than-expected economic data on housing, manufacturing and other key parts of the economy.

Investors also were relieved that the results of the government's "stress tests" of the 19 largest US banks were not worse than anticipated. Ten of them will need to raise about US$75 billion in new capital as a buffer against losses if the economy worsens.

"Getting past the stress tests was a milestone," said Jim Dunigan, managing executive of investments for PNC Wealth Management. "That was a cloud hanging over our head for the past several months. The good news is there were no surprises."

Shares of banks surged, even of those which have to raise more money. Citigroup Inc. rose 21 cents, or 5.5 percent, to US$4.02, and Bank of America Corp. rose 66 cents, or 4.9 percent, to US$14.17. Regional bank Fifth Third Bancorp soared US$3.14, or 59 percent, to US$8.49.

The stress tests found that BofA needs the most capital of its peers: US$33.9 billion. The bank plans to raise about US$17 billion in capital in the coming weeks, and plans an additional US$10 billion in asset sales.

"If anything, the market is reading this more as a sign of approval than a bad sign for the weaker banks," said Jim Sinegal, equity analyst at Morningstar.

Investors also got some encouraging words from the president of the Federal Reserve Bank of Richmond, Jeffrey Lacker, who said in a speech before the Washington D.C. Chamber of Commerce that the economy should bottom out later this year and begin expanding again.

Even the battered labor market has been showing signs of moderation. On Thursday, the government said new applications for unemployment benefits fell unexpectedly last week to the lowest level in 14 weeks.

Though analysts believe many challenges remain, the market has demonstrated an ability to maintain its gains, putting in its best two-month performance in nearly 35 years.

"Every economic report, every earnings release is going to continue to paint a picture of an economy that is on the mend and that is going to form the foundation for this rally, which I think is sustainable," said Jack Ablin, chief investment officer at Harris Private Bank. "There is still skepticism and pessimism and uncertainty, but the market will climb that wall of worry."

Energy stocks climbed higher yesterday as oil prices continued their ascent, adding US$1.92 to settle at US$58.63 a barrel on the New York Mercantile Exchange.

Chevron Corp. gained US$2.40, or 3.5 percent, to US$70.38, while Exxon Mobil Corp. rose US$1.87, or 2.7 percent, to US$70.80.

The yield on the 10-year Treasury note inched up to 3.29 percent from 3.27 percent late Thursday.

The Russell 2000 index of smaller companies rose 18.88, or 3.8 percent, to 511.82 and is now up 2.5 percent for the year.

Six stocks rose for every one that fell on the New York Stock Exchange, where volume came to 2 billion shares.


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