Dow jumps 177 on rate-cut hopes

The stock market moved sharply higher today as gains for financial stocks overcame declines by such key stocks as McDonald's (MCD, news, msgs) and Google (GOOG, news, msgs).

At the close, the Dow Jones industrials were up 177 points, 1.5%, to 12,384. The Standard & Poor's 500 Index was up 23 points, 1.8%, to 1,354. The Nasdaq Composite Index added a more modest 24 points, or 1%, to 2,350. Google was down 1.8% to $555.98.

Meanwhile, a dreadful report on new-home sales added to gloom about the economy, but housing stocks continued a strong recovery this month. Since bottoming on Jan. 9, the Philadelphia Housing Sector Index ($HGX.X) was up 4.3% today and has risen almost 23% since bottoming last week.

McDonald's was down 5.6% to $51.07 on the day, knocking nearly 25 points off the Dow, after an otherwise solid earnings report showed that sales at U.S. restaurants were flat. That fed into worries that the economy was slipping.

But financial stocks rallied on optimism that the Federal Reserve will cut two key interest rates on Wednesday.

JPMorgan Chase (JPM, news, msgs) was the top performer among the 30 Dow stocks, up 4.4% to $45.57. Citigroup (C, news, msgs) was up 3.8% to $27.65. The Amex Securities Broker/Dealer Index ($XBD.X), which tracks investment banks and big brokers, was up 3.8% to 197. Goldman Sachs (GS, news, msgs) rose 2.6% to $196.25.

The Fed is widely expected to cut its federal funds rate -- the rate banks charge each other for overnight loans -- to 3% in a bid to help the economy weather a housing-generated slowdown.

• Economic stimulus tax rebate - what will you do with the money?

It also may cut its discount rate to 3.5%. The discount rate is what the central bank charges member banks for short-term loans.

The stock rally came as gold hit a new high of $932.80 an ounce -- the 10th record close for the metal this month. Investors are seeking shelter from the dollar, which has been falling with interest rates.

Crude oil also rebounded from an early slump, finishing at $90.99 a barrel in New York, up 28 cents from Friday. Crude oil lately has been moving up and down with the stock market's perceptions of the health of the U.S. economy.

ConocoPhillips (COP, news, msgs) was up 3.1% to $76.41. Oil and gas producer Apache (APA, news, msgs) rose 1.7% $94.16.

Twenty-seven of 30 Dow stocks were higher today, along with 432 S&P 500 stocks and 26 Nasdaq-100 ($NDX.X) stocks.

3M, Eli Lilly and Yahoo earnings on tap

Tuesday, Dow component 3M (MMM, news, msgs) leads the morning round of earnings reports, along with Eli Lilly (LLY, news, msgs), JetBlue (JBLU, news, msgs), paint manufacturer Sherwin-Williams (SHW, news, msgs) and U.S. Steel (X, news, msgs).

The big afternoon report will come from Internet search company Yahoo (YHOO, news, msgs), which was down 5.3% today to $20.78. Analysts are estimating the company will report 11 cents a share in fourth-quarter earnings, down from 16 cents a year ago. Revenue will be up 15% to $1.4 billion once payments to partners are deducted.

Google reports fourth-quarter earnings after Thursday's close.

• Check MSN Money's earnings calendar

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$90.99	$90.71	$0.28	-5.20%	-5.20%
Heating oil (per gallon)	$2.5265	$2.5191	$0.0074	-4.64%	-4.64%
Natural gas (per million BTU)	$8.0950	$7.9830	$0.1120	8.18%	8.18%
Unleaded gasoline (per gallon)	$2.3253	$2.3182	$0.0071	-6.64%	-6.64%

American Express shares off on cautious outlook

After the close, shares of American Express (AXP, news, msgs) were down 2.5% to $46.20 after the financial services company said fourth-quarter earnings fell 10% after it boosted reserves to cover bad loans.

Earnings met analyst estimates, but revenue fell short.

American Express said it earned $831 million, or 71 cents per share, down from $922 million, or 75 cents, a year ago. Return on equity rose to 37.3% from 34.6%. Revenue was $7.36 billion, up 10% from a year ago, but it was short of analyst estimates of $7.78 billion.

American Express had announced plans for a charge on Jan. 10, worrying investors who thought its wealthier cardholders might be less likely to feel financial pressure as the economy slowed.

The company said it could see results weaken because of a softening economy and because of deteriorating consumer finances.

The stock had closed up 4.3% to $47.40. The stock had been the second-best Dow performer.

McDonald's December sales disappoint

McDonald's reported fourth-quarter net income of $1.27 billion, or $1.06 per share, up slightly from $1.24 billion, or $1 a share a year ago.

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Excluding income-tax benefits, McDonald's earned 73 cents per share, 2 cents above analysts' estimates.

But all Wall Street wanted to focus on was the company's report of flat December sales. In fact, it was the slowest same-store sales growth in nearly five years. The company blamed harsh winter weather and weaker consumer demand.

McDonald's was the third-best Dow performer in 2007 with a 33% gain, but the shares have fallen 19% since peaking on Dec. 11 as worries about consumer spending and the possibility of recession started to grow rapidly.

Separately, rival Wendy's (WEN, news, msgs) was down 5.3% to $23.92 after the company said its strategic review would take longer than it previously thought.

Investors shrug off bad home sales report

For the housing market, the bad news never seems to end.

The Commerce Department reported today that new-home sales fell 4.7% in December to an annual pace of 604,000 -- the lowest level since February 1995. That's below the 645,000 pace that economists had expected for December.November new-home sales were revised lower to 634,000 from an initial reading of 647,000. New-home sales fell by 26.4% for all of 2007 to 774,000, the biggest drop since the data started being tracked in 1963.

• Video: Facing foreclosure?

The median price of a new home fell 10.4% to $219,200 last month from $244,700 in December 2006. The median price of a new home rose a mere 0.2% for all of 2007, to $246,900.

A big chunk of the price drop came because the percentage of $500,000-plus homes has dropped substantially in recent months. In 2006, the group represented nearly 12% of total sales. In December, they were just 7% of the total. Marketwatch.com noted that the drop-off seems to be related to the collapse in the market for jumbo mortgages.

The report didn't hurt home-building stocks. Ryland (RYL, news, msgs) was up 6.2% to $31.36, although the shares were falling in after-hours trading. Lennar (LEN, news, msgs) was up 9% to $18.50, but, like Ryland, the shares were tumbling in after-hours trading.

The stocks seemed to be benefitting from an investor perception that they had become oversold. The after-hours moves, however, may be a signal that the rally was simply short covering.

CME bids on NYMEX

There could be another merger in the exchange sector.

Chicago Mercantile Exchange parent CME Group (CME, news, msgs) confirmed this morning that it is in preliminary discussions with NYMEX Holdings (NMX, news, msgs) about a deal. The terms of the deal would provide Nymex shareholders $36 in cash and 0.1323 share of CME for each Nymex share owned.

Nymex is the parent of the New York Mercantile Exchange. In addition to the Chicago Merc, CME also owns the Chicago Board of Trade.

Nymex shares jumped 8.7% to $116.50; CME shares were down 0.6% to $625.'

Continued: Countrywide's CEO gives up severance package

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