Dow jumps 233 on Fed's discount-rate cut

"Here I come, to save the day . . . "

It wasn't Mighty Mouse who came to the markets' rescue Friday morning, but Federal Reserve Chief Ben Bernanke.

After a wild week, the Fed cut the discount rate to 5.75% from 6.25%. The move is intended to help ease fears that have been causing wild swings in the markets over the past few weeks.

• Video: More on the Fed's rate cut

Stocks, especially financial stocks, soared on the news, climbing nearly 322 points right after the open, after a heck of a roller-coaster ride on Thursday.

While gains had pared back a bit at the close, they were still big. The Dow Jones Industrial Average was up more than 233 points, or 1.8%, to 13,079. The Standard & Poor's 500 Index was up nearly 35 points to 1,446, and the tech-heavy Nasdaq Composite Index also rallied, up 54 points to 2,505.

Stocks that had been battered all week, such as Countrywide Financial (CFC, news, msgs), Washington Mutual (WM, news, msgs) and Lehman Bros. (LEH, news, msgs), saw big gains. Countrywide led the S&P 500 with a 13% gain to $21.43. Washington Mutual was up nearly 8% to $38.37. Lehman Bros. jumped 6.1% to $58.11.

Countrywide's problems financing its business operations in the last two weeks were a major reason for the market's recent turmoil.

The financials were joined by energy, metals and even some retailing stocks. Kohl's (KSS, news, msgs) was up nearly 8% to $62.88 after a strong profit report.

Bernanke brings cheer to a tough week

Friday's finish was the Dow's first gain after six straight losses, and it came after a big sell-off in markets in Asia and rallies in Europe. It was also the biggest gain for the Dow since it jumped 287 points on Aug. 6. Since Thursday's bottom -- when the Dow was down as much as 343 points -- the index has gained more than 560 points.

The S&P 500 enjoyed its biggest one-day percentage gain since April 2, 2003. The S&P 500, however, provided the one downside to the rally. The index bumped up against 1,450, its 200-day moving average, right on Friday's open. The index has been trading under the 200-day average since Aug. 10. But the index promptly fell back and never came close to cutting through it. That's suggests a bit of tentativeness in the rally's strength.

The market's gains were directly the result of the Fed's discount-rate cut. The discount rate, or "window," is the interest rate charged to commercial banks and other depository institutions on funds they borrow from the Fed.

"Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward," the Fed said in a statement. "The downside risks have increased appreciably."

• Read the Fed's statement

The Fed kept the overnight federal funds rate at 5.25%. That closely watched rate, discussed at the Fed's Open Market Committee meetings, determines the rate at which private depository institutions lend federal funds to each other overnight.

The Fed move was "just a brilliant move in letting the markets know where liquidity can be found and at what cost," Tim Hartzell, chief market strategist at Kanaly Trust in Houston, told Bloomberg News.

• Video: Did the Fed make the right move?

The move was a "very important symbolic measure," Miller Tabak chief bond strategist Tony Crescenzi said on CNBC this morning.

The timing of the Fed's move was key, Crescenzi said: People who had been speculating against the market got burned because the Fed made the cut before the market opened Friday.

Oil prices help energy stocks

For all the attention paid to what happened with the financial stocks on Friday, two other former market leaders had strong days: energy and metals.

• Strategy Lab: Fed’s move should calm the fears

Energy shares moved higher thanks to a jump in crude oil to $71.98. ExxonMobil (XOM, news, msgs) jumped 4.3% to $84.14 and was the Dow's leader. Right behind was Alcoa (AA, news, msgs), up 4.3% to $33.29.

Steel makers Nucor (NUE, news, msgs) and U.S. Steel (X, news, msgs) rose 8.2% to $9.61 and 2.3% to $82.24, respectively. Metals prices were generally higher.

Twenty-five of the 30 Dow stocks were higher, along with 465 S&P 500 stocks.

Volume was huge: nearly 2.5 billion shares on the New York Stock Exchange and 2.67 billion shares on Nasdaq. Both amounts were substantially above average.

For all the drama this week, the Dow finished the week down 1.2%; it's still up 4.9% on the year. The S&P 500 lost 0.5% this week and was down for the year briefly on Wednesday. It's now up 2% for 2007. The Nasdaq lost 1.6% this week but is up 3.7% for the year.

The major indexes are still down for August. If the indexes closed at current levels, they be down for a third straight month.

A point about Thursday's extremes. Most people forget that the Dow was down nearly 16 points for the day. That's because it came back from a 343.53-point loss in the middle of the day. To finish within 5% of break-even after being down so low was, for many, a major win.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	13,079.08	13,239.54	-1.21%	4.94%
S&P 500	1,445.94	1,453.64	-0.53%	1.95%
Nasdaq Composite	2,505.03	2,544.89	-1.57%	3.72%
Russell 2000	786.03	788.78	-0.35%	-0.21%
Crude oil per barrel	$71.98	$71.47	0.71%	17.90%
10-yr. Treasury yield	4.67%	4.67%	0.00%	-0.79%
Gold per troy ounce	$666.80	$681.60	-2.17%	4.51%

Roller-coaster Thursday

On Thursday, the Dow had fallen 343 points, then turned positive in the last few minutes of trading before closing down just 15 points at 12,846. The Dow had just entered correction territory, down 10% from its July 19 high -- but ended the trading session down 8.8% from that high point.

• Why is the market going crazy?

Continued fears about the credit crunch and subprime spillover caused much of Thursday's volatility, along with news that Countrywide Financial had been was forced to tap an $11.5 billion line of credit to fund its operations. Countrywide is down 55% since the beginning of the year.

This morning, however, Countrywide shares got a boost when the stock was upgraded to "neutral" from "sell" by Bank of America. Analyst Robert Lacoursiere said Countrywide's move Thursday should help address its liquidity concerns, but Lacoursiere wrote in a note to clients that he is still bearish on the residential mortgage market.

The analyst also cut his price target on the stock to $21 from $31.

Financials making moves

Financial stocks, which have been hit the hardest amid the recent market turmoil, were all making gains.

Merrill Lynch (MER, news, msgs) was up 6.9% to $76.04; Bear Stearns (BSC, news, msgs) was up 1.5% to $118.20; Goldman Sachs (GS, news, msgs) had gained 5.2% to $175.03; and Capital One Financial (COF, news, msgs) added 6% to $68.75.

The Amex Securities/Broker Dealer Index ($XBD.X) was also up Friday, adding 4.1% to 221.90.

Japan gets slammed

Investors' nerves were still on edge this morning before the Fed move, after Asian markets fell again overnight. The Nikkei 225 Index ($N225) closed down 875 points, or 5.4%, to 15,274 -- its lowest level in a year and its biggest point loss since 2001.

The yen gained strength Friday, climbing to a 14-month high against the U.S. dollar.

The yen had been weak for a long time because of the yen carry trade, in which investors purchase higher-yielding, riskier assets abroad using the low-yielding Japanese currency.

• When Wall Street genius fails

Investors, however, have been unwinding the yen carry trade recently amid the market's volatility, as investors pay back their loans made on the yen, and the yen has moved higher. Japanese exporters suffer from a higher yen because the value of profits made overseas declines when they are turned back into yen.

"Nobody expected such a fast appreciation," Hirokazu Yuihama, regional strategy chief at Daiwa Institute of Research in Hong Kong, said to MarketWatch.com. "That caused a huge sell-off in export related stocks such as autos and high techs."

Along with the Nikkei, the Seoul Composite fell 3.2% to 1,638, and the Hang Seng Index ($HSIX) fell 1.4% to 20,387. Even the highflying Shanghai Composite was off 2.3% to 4,657. A 9% drop in that market helped set off a major global sell-off on Feb. 27.

The Fed's move helped European markets. Britain's FTSE-100 Index ($GB:UKX) was up more than 4% to 6,094. Germany's Xetra Dax Index ($DE:DAX) added 2.3% to 7,434, and the French CAC-40 ($FR:PX1) was up nearly 3% to 5,422.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$71.98	$71.00	$0.98	-7.97%	17.90%
Heating oil (per gallon)	$2.0173	$1.9829	$0.0344	-3.94%	26.25%
Natural gas (per million BTU)	$7.0100	$6.8750	$0.1350	13.23%	11.29%
Unleaded gasoline (per gallon)	$2.0388	$1.9783	$0.0605	-4.76%	27.26%

H-P's profit soars

Hewlett-Packard (HPQ, news, msgs) late Thursday reported fiscal-third-quarter profit of $1.78 billion, or 66 cents per share. That's a 29% jump from $1.38 billion, or 48 cents per share, in the same quarter last year.

H-P's earnings were in line Wall Street's consensus estimate, but the company's 16% rise in revenue to $25.4 billion topped the consensus estimate of $24.1 billion.

• Video: H-P beats The Street

H-P shares rose nearly 3% to $47.41 on Friday.

"The turnaround is complete," Brent Bracelin, an analyst at Pacific Crest Securities, said to Bloomberg News. "This is now a growth story."

H-P forecast earnings between 80 and 81 cents per share for the current quarter, above analysts' estimate of 78 cents per share. Hewlett-Packard forecast sales of $27 billion to $27.2 billion, also above The Street's estimate.

Chief Executive Officer Mark Hurd said the company's revenue-growth rate was the strongest in seven years. Hurd has cut costs at the tech giant by $3 billion since arriving at the company in 2005.

Hewlett-Packard took over as the No. 1 personal-computer maker from rival Dell Inc. (DELL, news, msgs) in the third quarter of 2006, after being in second place since 2003.

Dell to restate earnings

Dell also had some news after the close Thursday, but it wasn't so uplifting.

The computer maker said it will restate more than four years of financial results after discovering "errors and irregularities." The restatement period dates back to fiscal 2003 and goes all the way through the company's fiscal-first-quarter earnings period for this year.

Dell's reported net income will be reduced by between $50 million and $150 million -- only a fraction of the $12 billion it earned in that restatement period.

• Video: The changing face of the new investor

"The rigorous examination of our accounting and finance processes, along with the remedial actions taken and planned, have made and will continue to make Dell a far stronger company and provide a solid foundation on which to move the business forward, reinforce our standards and focus our energy on serving our customers," Chief Financial Officer Donald Carty said in a press release late Thursday.

Dell, which has been struggling to compete with Hewlett-Packard, brought its founder, Michael Dell, back to the helm in January to help revive the company.

Shares of Dell rose 1.4% to $26.30 for the day.

Whole Foods gets green light

A federal judge late Thursday denied a move by the Federal Trade Commission to block the acquisition of Wild Oats (OATS, news, msgs) by Whole Foods Market (WFMI, news, msgs).

U.S. District Judge Paul Friedman rejected an FTC request for a preliminary injunction that would have halted the deal until the agency executed a full review of the deal. The two companies can now proceed with their announced $565 million.

• Web scandal hits Whole Foods

Shares of Wild Oats jumped nearly 17.4% to $17.85; shares of Whole Foods rose 7.9% to $44.43.

Short hits from the markets -- 4 p.m. ET

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.620%	3.700%	-0.080	-24.74%	-25.90%
5-year Treasury note yield	4.337%	4.261%	0.076	-5.76%	-7.74%
10-year Treasury note yield	4.673%	4.600%	0.073	-2.05%	-0.79%
30-year Treasury bond yield	5.000%	4.925%	0.075	1.58%	3.78%
Currencies
U.S. Dollar Index	81.36	81.72	-0.36	0.87%	-2.48%
British pound in dollars	$1.9826	$1.9853	-0.0028	-2.08%	1.17%
Dollar in British pounds	£0.5044	£0.5037	0.0007	2.13%	-1.16%
Euro in dollars	1.3481	1.3430	0.0051	-1.31%	2.13%
Dollar in euros	€ 0.7418	€ 0.7446	-0.0028	1.32%	-2.09%
Dollar in yen	¥114.31	¥114.43	-0.12	-2.95%	-3.96%
Commodities
Gold	$666.80	$658.00	$8.80	-1.84%	4.51%
Copper	$3.1475	$3.0900	$0.058	-13.73%	9.63%
Silver	$11.8000	$11.4950	$0.31	-11.69%	-11.13%
Crude oil (NYMEX) (per barrel)	$71.98	$71.00	$0.98	-7.97%	17.90%

Midwest accepts TPG's offer

After a long back-and-forth battle, Midwest Air (MEH, news, msgs) decided to accept a $450 million, or $17-per-share offer, to be acquired by private-equity firm TPG Capital.

Midwest shares were up 5.9% to $15.57.

The move ends a long bidding war between TPG and AirTran Holdings (AAI, news, msgs), which had been trying to buy Midwest for the past two years.

On Thursday, Midwest had said it would consider a sweetened $16.27-per-share bid from AirTran. AirTran had increased its offer for the airline after Midwest's biggest shareholders, Pequot Capital Management, said it was wary of a deal with a private-equity firm.

AirTran had been courting Midwest so it could expand at Milwaukee's airport. "We pursued a deal vigorously, and for the right reasons," CEO Joe Leonard said in a statement. "But AirTran doesn't need to merge with any other carrier to achieve our business goals."

AirTran was up 2% to $10.17.

By Elizabeth Strott and Charley Blaine