A Countrywide rescue cheers Wall St.

Stocks jumped today on the possibility that Bank of America (BAC, news, msgs) will acquire Countrywide Financial (CFC, news, msgs), the nation's largest mortgage lender and one of the most troubled players in the subprime-mortgage crisis.

The second big rally in as many days also continued on Federal Reserve Chairman Ben Bernanke's promise that the central bank stands ready to move aggressively to help stave off a recession.

Adding additional fire: falling oil prices and speculation of a new round of airline mergers.

The Dow Jones industrials closed up about 118 points, or 0.9%, to 12,853. The Nasdaq Composite Index was up 14 points, 0.6%, to 2,489, and the Standard & Poor's 500 Index jumped 11 points, or 0.8%, to 1,420. The Dow had been up nearly 200 points shortly after 3 p.m.

The big rallies were welcome news for traders stunned by a market that had begun 2008 with its worst five-day performance in years.

But the market may be pressured Friday because of American Express' (AXP, news, msgs) warning that it expects slower spending and more missed payments on credit card bills to hamper its profit in 2008. Shares were down 6.8% in after-hours trading.

In part because of the housing slump, the company said, charges on the company's roughly 84.7 million cards began to tail off in December, and more customers failed to pay their balances. American Express will reserve $440 million for the fourth quarter to account for overdue payments.

Countrywide, meanwhile, soared 51% to $7.75 after The Wall Street Journal reported that Bank of America was in advanced talks to acquire the troubled company. Bank of America closed up 1.5% to $39.30.

• Video: What to watch for on Friday

Countrywide was the biggest gainer among S&P 500 stocks and the most active stock on the New York Stock Exchange. Two more troubled financial companies -- E*Trade Financial (ETFC, news, msgs) and Washington Mutual (WM, news, msgs) -- followed, up 22% to $2.93 and 15% to $14.16, respectively.

The news also pushed home building stocks higher. Centex (CTX, news, msgs) jumped 7.7% to $20.71. Lennar (LEN, news, msgs) rose 6% to $14.71.

Countrywide shares had fallen as much as 90% since February 2007 as problems in subprime mortgages advanced from modest concerns into a full-blown global financial crisis. Its market capitalization of $3 billion after Wednesday's close was the equivalent of two months' profit for Bank of America, The Journal noted.

Bank of America propped up Countrywide last August by buying $2 billion of preferred shares convertible into a stake of about 16% in the mortgage lender. The conversion price was $18 a share, substantially higher than its share price today. There has been considerable talk that Bank of America would end up acquiring Countrywide.

Crude oil falls, gold closes in on $900

Crude oil, meanwhile, fell 2% to $93.71 a barrel in New York, its first close under $94 in two weeks, after Goldman Sachs said Japan is at risk of recession, cutting energy consumption.

Energy stocks moved lower in response.

But gold closed at a new high of $893.60 an ounce in New York as the dollar weakened again. The precious metal hit an intraday high of $897.30 before easing back after Bernanke's speech. Analysts see gold crossing $900 an ounce soon.

The U.S. dollar index, which measures the index against a basket of currencies, was down 0.6% to 75.934 this afternoon.

Bernanke sees 'risks' to the broad economy

The Countrywide news came after Bernanke's effective promise to act to support the economy with more rate cuts. Economic data has suggested that the domestic economy is weakening quickly, in part because of the housing crisis and related stresses on the global financial system. Manufacturing has been weakening as well.

Recent "market strains have been serious, and they continue to pose risks to the broader economy," Bernanke said in his speech before a joint meeting of the Women in Housing and Finance and Exchequer Club in Washington, D.C.

• Talk back: Is this a correction or the start of a bear market?

The economic outlook for 2008 has worsened, he added. Housing demand is weaker because of deep problems in the nation's mortgage markets. And, he said, "higher oil prices, lower equity prices and softening home values seem likely to weigh on consumer spending as we move into 2008."

As a result, "we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."

Wall Street interpreted that comment as a promise to cut interest rates. But stocks began to struggle soon after the text was released, a reflection of frustration that the Fed hasn't moved yet to cut rates further.

• Video: What's ahead for housing in 2008?

The Fed's key federal funds rate, the rate banks charge each other for overnight loans, is now at 4.25%. Many economists see the central bank dropping the rate to 3.75% at its meeting Jan. 29-30 meeting.

The text of Bernanke's speech was released ahead of its delivery, and the market shot up more than 130 points -- but for only a short time. In fact, the gains had evaporated within about 90 minutes because of skepticism that Fed rate cuts will act fast enough to jumpstart the economy. In addition, there seems to be a large group of investors who believe that the Fed has been late to recognize the seriousness of the subprime problem and the threats it posed to the economy.

Bernanke's worries include a weakening jobs picture. But the Labor Department reported today that the number of people filing for unemployment for the first time fell by 15,000 to 322,000 last week -- the lowest level since Nov. 3.

Unemployment figures have been top of mind for investors and economists alike since last week's reading on the December jobs report, which showed far fewer new jobs than economists had expected. The unemployment rate also ticked up to 5% in December, causing concern about the economy.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$93.71	$95.67	-$1.96	-2.37%	-2.37%
Heating oil (per gallon)	$2.5573	$2.6134	-$0.0561	-3.48%	-3.48%
Natural gas (per million BTU)	$8.2590	$8.0990	$0.1600	10.37%	10.37%
Unleaded gasoline (per gallon)	$2.3601	$2.4355	-$0.0754	-5.25%	-5.25%

Bouncing off the lows

After Tuesday's close, the Dow and S&P 500 were down more than 11% from their peaks on Oct. 9. The Nasdaq was down more than 15% from its six-year peak on Oct. 31. The losses from those peaks put the market firmly into a correction, which is a 10% decline from a peak.

With today's rally, the Dow and S&P 500 are still down 9.3% from their peaks and down 3% this month. The Nasdaq is off 13% from its peak and 6% this month.

The small-cap Russell 2000 Index ($RUT.X) was up 1.1% to 720 on the day. Down as much as 18% after Tuesday from its 2007 high on July 13, the index is now down "only" 16%.

Twenty-four Dow stocks were higher, along with more than 380 S&P 500 stocks and 65 Nasdaq-100 ($NDX.X) stocks.

Wal-Mart has a rare good holiday season

Retailers generally showed weak holiday sales today, with one huge exception: Wal-Mart Stores (WMT, news, msgs).

The retailing giant reported that sales at stores open at least one year rose 2.7% in December, beating Wall Street's estimate of a 1.8% rise last month. The stock rose 3.2% to $48.40.

Excluding fuel sales, Wal-Mart said, same-store sales rose 2.4% in December.

Wal-Mart also reiterated its fourth-quarter earnings forecast of 99 cents to $1.03 per share.

Things looked good at Costco Wholesale (COST, news, msgs), which reported a 7% rise in same-store sales; analysts had been expecting a 5.6% rise. Shares were up 3.9% to $69.86.

• Video: Is the retail sector close to a bottom?

Limited Brands (LTD, news, msgs) reported an 8% drop in same-store sales, worse than the 4% decline analysts had predicted. But shares were up 2% to $16.01.

AnnTaylor (ANN, news, msgs) also disappointed: The company reported a 9.4% drop in December same-store sales, far worse than the estimated 1.9% decline. Shares fell 15% to $19.95.

The retail picture "is weaker than expected," Jharonne Martis, a retail analyst at Thomson Financial, told The Associated Press. "There's definitely a consumer spending slowdown." More than 60% of retailers tracked by Thomson reported lower-than-expected same-store sales.

Delta shares jump on airline merger talk; unions fret

Late today, The New York Times reported that Delta Air Lines (DAL, news, msgs) CEO Richard Anderson plans to ask the company’s board for permission to enter into formal merger talks with both Northwest Airlines (NWA, news, msgs) and UAL's (UAUA, news, msgs) United Airlines.

Emerging from bankruptcy protection was a huge accomplishment for Delta, but high oil prices and a slowing economy are hurting the company.

Even some of Delta's unions see a merger of some kind as inevitable. Lee Moak, chairman of the company's pilots union, wrote members late Wednesday that union leaders are meeting in Atlanta this week to discuss the possibility that Delta might be part of an industry consolidation.

The pilots union could support "the right consolidation," the union leader wrote, adding that "any consolidated company must provide meaningful protections and added value for the Delta pilots."

The airline industry has been saddled with soaring oil prices and falling profits, and in mid-November, Delta denied that it was talking with United about a merger.

UBS had suggested this week that a Delta merger with Northwest Airlines was a more likely possibility.

Delta shares were up 18.2% to 15.98; they had been as high as $16.93. Northwest shares soared 32% to $15.85 on the Delta talk. UAL was up 24% to $32.19.

The Amex Airline Index ($XAL.X) jumped 12% to 32.73 as investors cheered the prospect of fewer American carriers. Southwest Airlines (LUV, news, msgs) was the tenth-best S&P 500 performer with a 7.8% gain to $12.15.

Capital One slashes forecast

You think you have credit card problems? Now your credit card company does, too.

Capital One (COF, news, msgs) this morning warned that 2007 earnings would be $3.97 per share, a 20% decline from its previous forecast of $5.00 for the full year. Capital One also said it expects fourth-quarter earnings of 60 cents per share. The company earned $1.14 per share in the fourth quarter of 2006.

Shares of Capital One fell 1% to $42.92 on the day. Capital One said it is taking a $1.9 billion provision for losses on bad loans in the fourth quarter, with $1.3 billion in charge-offs -- bad-debt expenses that will be written off the company's balance sheet.

"It's another bank in the negative credit-market slipstream," Howard Wheeldon, senior strategist at BGC Partners in London, told Bloomberg News. "The outlook for bad loans remains grim."

Capital infusions coming for Citi & Merrill

Citigroup (C, news, msgs) and Merrill Lynch (MER, news, msgs) seem to be poised to get more cash from abroad.

The two financial-services companies are both reportedly negotiating more investments from foreign investors to help deal with the credit- and mortgage-market messes.

The Wall Street Journal is reporting that Citi is expecting to get $10 billion in capital from foreign governments, while Merrill is likely to get between $3 billion and $4 billion from a Middle Eastern investment fund.

The two companies have already received injections from international investors: In November, Citigroup received $7.5 billion from Abu Dhabi's investing division and Merrill sold $5 billion in stock to a company owned by Singapore's Temasek Holdings last month.

Merrill Lynch was up 3.1% to $52.03. Citigroup was up 2.3% to $28.11.

Alcoa reports big jump in profits

If only Alcoa (AA, news, msgs) were an indication of the upcoming fourth-quarter earnings season.

The aluminum giant and Dow component blew the lid off the fourth quarter late Wednesday when it reported a 76% jump in profit to $632 million, or 75 cents per share, from $359 million, or 41 cents per share, in the same quarter of 2006.

• Video: Inside Alcoa's earnings

Alcoa benefited from the sale of its packaging unit, which it sold last month for $2.7 billion.

Excluding items, Alcoa earned 35 cents per share, topping Wall Street's estimate of 33 cents per share.

Shares were up 0.6% to $31.44 on the day.

Alcoa's revenue fell 5% to $7.39 billion because of falling aluminum prices. The price of aluminum fell 4% in the fourth quarter from the third quarter of 2007 and 8% from the fourth quarter of 2006.

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

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.130%	3.110%	0.020	-0.32%	-0.32%
5-year Treasury note yield	3.158%	3.089%	0.069	-8.60%	-8.60%
10-year Treasury note yield	3.887%	3.791%	0.096	-3.67%	-3.67%
30-year Treasury bond yield	4.444%	4.321%	0.123	-0.34%	-0.34%
Currencies
U.S. Dollar Index	75.93	76.42	-0.485	-0.99%	-0.99%
British pound in dollars	$1.9612	$1.9585	0.0027	-1.41%	-1.41%
Dollar in British pounds	£0.5099	£0.5106	-0.0007	1.43%	1.43%
Euro in dollars	1.4810	1.4667	0.0143	1.33%	1.33%
Dollar in euros	€ 0.6752	€ 0.6818	-0.0066	-1.32%	-1.32%
Dollar in yen	¥109.37	¥109.96	-0.59	-2.22%	-2.22%
U.S. dollar in Canadian dollars	$0.990	$1.010	$0.0000	-0.26%	-0.26%
Canadian dollar in U.S. dollars	$1.010	$0.990	$0.0007	0.26%	0.26%
Commodities
Gold	$893.60	$881.70	$11.90	3.22%	6.63%
Copper	$3.2815	$3.2835	$0.00	3.93%	7.91%
Silver	$16.2750	$15.8400	$0.43	5.26%	9.08%
Crude oil (NYMEX) (per barrel)	$93.71	$95.67	-$1.96	-4.29%	-2.37%

By Charley Blaine and Elizabeth Strott