Dow up 133, but crude oil tops $80

Stocks moved higher today, thanks to strength among key stocks in the Dow Jones industrials and a rally in financial stocks set off when Countrywide Financial (CFC, news, msgs) said it had arranged more backing for itself.

But what had been a terrific rally fell back to just a very good rally. A big issue was that traders worried that crude oil's first-ever finish above $80 a barrel might hurt the economy later on.

The Dow Jones industrials finished the day with a gain of about 133 points, or 1%, to 13,425. The blue chips had been up more than 170 points earlier in the day, however.

The Standard & Poor's 500 Index moved up 12 points, 0.8%, to 1,483, and the Nasdaq Composite Index was up 9 points, or 0.4%, to 2,601.

Today's was the Dow's second gain of more than 100 points this week and put the index up 2.3% on the week.

Crude's second record in two days

Crude oil closed at $80.09, breaking a record set only on Wednesday. The commodity had bounced around $80 all day after Hurricane Humberto knocked out power at three oil refineries in Port Arthur, Texas.

While prices may continue to rise in the short run, traders still see crude falling back once hurricane season eases. Crude usually falls back -- and brings gasoline prices down with it -- between October and mid-winter, when oil companies start to rebuild supplies for the summer driving season.

Crude's gain helped oil stocks move higher. The Amex Oil Index ($XOI.X) was up 1% to 1,411. ExxonMobil (XOM, news, msgs) and Chevron (CVX, news, msgs) were up 1% each to $88.62 and $90.09, respectively.

While gasoline futures were higher and one could expect retail pump prices to move higher, AAA's daily survey showed the U.S. average at $2.808 a gallon today, down slightly from Wednesday.

A big reason for crude's recent rise continued to be the lower dollar. While the greenback moved modestly higher today, it has been falling steadily since the Fed cut its discount rate on Aug. 17. The dollar was up today because the stock market rally pulled money from bonds, forcing yields to move higher. The 10-year Treasury yield moved to 4.48% today from 4.41% on Wednesday.

"This is a historic day," Daniel Yergin, the energy historian and consultant told The New York Times. "This price reflects the fact that there is a lot of risk in the market, whether you are looking at Nigeria, or Iraq, or even in the Western Hemisphere."

Oil prices have jumped nearly fourfold since 2000 because of several factors:

• Increased demand from China and India.

• Declining production in Venezuela and Mexico.

• Supply disruptions from political crises in the Middle East and Africa and bad weather in the United States.

Gasoline prices have periodically soared in recent years not only because of high crude prices, but also because of disruptions and tight capacity at American refineries.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$80.09	$79.91	$0.18	8.17%	31.19%
Heating oil (per gallon)	$2.2190	$2.2191	-$0.0001	8.66%	38.87%
Natural gas (per million BTU)	$6.0290	$6.4380	-$0.4090	10.26%	-4.29%
Unleaded gasoline (per gallon)	$2.0464	$2.0160	$0.0304	-0.27%	27.73%

GM, Countrywide push the markets

The Dow had been paced all day by General Motors (GM, news, msgs), which finished up 10% to $33.05, and McDonalds's (MCD, news, msgs), up 6.05% to $54.30 after the fast-food giant said it would boost its dividend by 50%. The two stocks combined to add more than 50 points to the day's gains.

But Countrywide was the big star of the day, jumping nearly 14% to $18.93 after announcing it had obtained $12 billion in new financing. Countrywide was the biggest percentage gainer among S&P 500 stocks, followed by GM and Kohl's (KSS, news, msgs), up 6.06% to $56.50, and McDonald's.

In addition, discount retailer Target (TGT, news, msgs) added 2.7% to $64.42 on news that it might sell its credit card business, which has $7 billion in receivables.

Much of the buying was the result of traders who didn't want to be short in advance of the Federal Reserve's meeting on Tuesday. The Fed is widely expected to cut its federal funds rate from 5.25%, where it's been for a year, to 5% or lower.

The gains were broad, with 23 Dow stocks and 360 S&P 500 stocks higher this afternoon.

What's not to like about the rally?

There were two modest downsides to today's rally.

First, volume was light again, with New York Stock Exchange volume on track for possibly 1.1 billion shares. Nasdaq volume was 1.68 billion shares.

Techs were weak, in part because of Alcatel-Lucent (ALU, news, msgs), one of the biggest telecommunications companies, said its third-quarter operating profit would be about break-even. The company said talks with wireless companies suggest they will be trimming back capital spending for the rest of the year. Alcatel was down 8.8% to $9.16.

The Philadelphia Semiconductor Index ($SOX.X) was down 0.4% at 488.18. Chip giant Intel (INTC, news, msgs) was off 0.4% to 25.35, one of the four Dow stocks to show a loss today. The Amex Networking Index ($NWX.X) fell nearly 2% to $290.37. Cisco Systems (CSCO, news, msgs) was down 0.9% to $31.51.

Countrywide shores up finances

Investors were delighted that Countrywide was able to attract more financing. The move "should substantially address funding concerns," Credit Suisse analyst Moshe Orenbuch said in a research note.

The financing is all secured financing, made necessary because the company has been largely unable to sell unsecured commercial paper to fund its mortgages.

Countrywide's announcement included the disclosure that its mortgage business is shrinking. The company said it also funded $34.4 billion in mortgages in August, down 17% from a year ago. Its pipeline of unclosed mortgages fell 16.8% from July to $51.8 billion.

Much of the funding for the loans it actually made came from its wholly owned savings & loan, Countrywide Bank.

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Last month, Countrywide received a $2 billion infusion from Bank of America (BAC, news, msgs), which could eventually give the second-largest U.S. bank a one-sixth stake in the lender.

On Wednesday, U.S. Treasury Secretary Henry Paulson urged Countrywide Chief Executive Angelo Mozilo and other mortgage officials to help borrowers who took out adjustable-rate loans that have rates which are resetting to higher levels.

Countrywide's rally helped prompt a rally in financial stocks generally. The Select Sector SPDR Financial (XLF, news, msgs) exchange-traded fund, designed to mirror the financial sector of the S&P 500, was up 1.5% to $33.81, the best among the nine SPDR ETFs. The Amex Securities Broker/Dealer Index ($XBD.X) jumped 2.6% to 225.58.

Lehman Bros. (LEH, news, msgs), which has had a heavy exposure to the problems in the mortgage markets, was up 4.6% to $59.68. Citigroup (C, news, msgs) was up 1.3% to $46.36. JPMorgan Chase (JPM, news, msgs) added 2.5% to $45.60.

Analyst sees GM successful in labor negotiations

GM shares moved up after Citigroup analyst Itay Michaeli, in a client note assuming coverage of the stock from another analyst, lifted his rating all the way to "buy" from "sell" and bumped his target price to $41 from $27.

Nevertheless, Michaeli said GM is currently not a buy-and-hold stock, since the company's long-term turnaround is "heavily tied to the outcome of this fall's labor negotiation."

But signs have been encouraging, and the upgrade helped shares of Ford Motor (F, news, msgs) move up 5.6% to $7.92.

Separately, shares of drug giant Merck (MRK, news, msgs) moved up 0.4% to $49.86 after analyst Chris Schott of Banc of America Securities upgraded the stock to "buy" from "neutral," saying its new drug candidates will be approved and that sales of its diabetes drug Januvia and HPV treatment Gardasil are getting stronger.

McDonald's big dividend increase

McDonald's boosted its dividend to $1.50 a share as part of a plan to up to $17 billion to shareholders through 2009. The dividend is payable Dec. 3 to shareholders of record on Nov. 15.

The new payout brings McDonald's dividend yield to 2.9%, well above the average dividend yield of 0.98% for companies in the Standard & Poor's Consumer Discretionary index.

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McDonald's yearly dividend is now more than six times what it was in 2002, the year before the company launched an aggressive turnaround that included putting the brakes on its rapid expansion and focusing on improving results at existing locations with new menu items, extended hours and cashless payments.

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That effort has revitalized sales and profits and helped triple its stock price since the beginning of 2003.

One investor said McDonald's move may prompt other companies to return more cash to shareholders.

"Institutional investors who have significant positions in other companies will probably remind those companies sitting on cash that they might be doing their shareholders a favor by accelerating share repurchases," Fred Dickson, director of retail research at D.A. Davidson & Co., told Reuters.

Why Target may sell its credit card business

Technically, Target says it is weighing strategic options for its $7 billion credit card portfolio. But Wall Street sees that as essentially putting the business up for sale.

The timing is odd -- in the middle of a credit crunch. But JPMorgan analyst Charles Grom said in a research note that the decision may well have been the result of pressure by investor Bill Ackman, who recently bought 10% of the company.

The portfolio has been mostly solid through the second quarter, he noted. As a result, he thinks it will generate a premium price.

Coupled with a big stock buyback, it could boost earnings per share nicely, he said.

A sign of an easing credit crunch?

The decline in the U.S. commercial paper market slowed last week, as concerns eased that borrowers would be unable to repay their short-term debt.

The $8.2 billion reduction, down from $31.3 billion a week earlier, signals the credit squeeze sparked by defaults on subprime mortgages may be easing. The freeze shut out borrowers such as Countrywide, Thornburg Mortgage (TMA, news, msgs) and GMAC. Issuers with the biggest chance of default had stopped trying to sell debt, Tony Crescenzi, chief bond market strategist at Miller Tabak, told Bloomberg News.

"Investors have already pushed out the weakest issuers," Crescenzi said. "The commercial paper that remains is a relatively more respected crop."

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Short-term debt maturing in 270 days or less fell to a seasonally adjusted $1.92 trillion in the period ended yesterday, including a $21.6 billion decline in asset-backed commercial paper, according to data released today by the Federal Reserve. Commercial paper outstanding has fallen $306.4 billion in five weeks.

The slump is the longest since at least July and August 2003, when the amount of debt decreased by 1.5% over four weeks, Bloomberg noted. Asset-backed paper, which dropped 2.2% in the past week to $945.1 billion, declined $237.8 billion, or 21%, in the past five weeks.

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

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.950%	3.900%	0.050	-1.00%	-19.14%
5-year Treasury note yield	4.193%	4.100%	0.093	-1.36%	-10.81%
10-year Treasury note yield	4.482%	4.408%	0.074	-1.21%	-4.84%
30-year Treasury bond yield	4.743%	4.687%	0.056	-1.82%	-1.56%
Currencies
U.S. Dollar Index	79.31	79.17	0.14	-1.95%	-5.11%
British pound in dollars	$2.0280	$2.0305	-0.0025	0.49%	3.49%
Dollar in British pounds	£0.4931	£0.4925	0.0006	-0.48%	-3.37%
Euro in dollars	1.3891	1.3908	-0.0017	1.89%	5.24%
Dollar in euros	€ 0.7199	€ 0.7190	0.0009	-1.85%	-4.98%
Dollar in yen	¥115.10	¥114.17	0.93	-0.56%	-3.29%
Commodities
Gold	$717.90	$720.70	-$2.80	5.28%	12.52%
Copper	$3.3965	$3.3595	$0.037	-0.01%	18.30%
Silver	$12.6800	$12.7930	-$0.11	3.68%	-1.10%
Crude oil (NYMEX) (per barrel)	$80.09	$79.91	$0.18	8.17%	31.19%

By Charley Blaine