Will the market rebound carry into next week?

By Charley Blaine and Elizabeth Strott

The stock market had a turnaround Friday afternoon that took investors' breaths away.

Down 129 points at 3:15 p.m. ET, the Dow Jones industrials suddenly turned and were up 1 point by 3:35 p.m. At the close, the blue-chip index was up 97 points, or 0.8%, to 12,381.

The Standard & Poor's 500 Index also finished in the black, up 10 points, or 0.8%, to 1,353. The Nasdaq Composite Index, which had been weak all day, finished up 4 points, or 0.2%, to 2,303.

The turnaround was caused by a Charles Gasparino report on CNBC that suggested that banks, including Citigroup (C, news, msgs) and Wachovia (WB, news, msgs), and bond insurer Ambac Financial Group (ABK, news, msgs) would be working over the weekend to craft a rescue plan for the bond insurer. The plan would be announced Monday or Tuesday.

There was hope -- and skepticism -- that the reversal would carry over into next week, when several important economic and earnings reports are due. Also, Federal Reserve Chairman Ben Bernanke is scheduled to testify to Congress about the economy and interest rates.

The hope was that a solution for Ambac would ease the current credit crunch. The skepticism came from the potential a deal would fall apart.

Talks between Ambac, banks and New York State Insurance Superintendent Eric Dinallo have been going on for some time, as MSN Money's Jim Jubak noted Friday in his column "A painful fix for the credit crisis."

The goal would be for Ambac to split itself in two and raise $3 billion in new capital. About $2.5 billion would be new equity; the rest would be debt.

If successful, the split would safeguard Ambac’s top credit ratings and prevent banks from having to write down billions of dollars in mortgage-related securities they have insured through Ambac, The New York Times said.

The key to getting close to a deal was widespread participation from banks that hold securities that are at risk of downgrade if the firm itself is downgraded, The Wall Street Journal said.

Citigroup in the fourth quarter took a $935 million hit stemming from its exposure to the bond insurers but has another $3.8 billion of exposure on its books, the company said last month.

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Ambac had been down as much as 12% on the day before the CNBC report. It finished the day up 16% to $10.71, tops among S&P 500 stocks. Rival MBIA (MBI, news, msgs), which isn't part of the plan, had been down 10% but finished up 2.4% to $12.18.

The Amex Securities Broker/Dealer Index ($XBD.X), down as much as 2.3%, finished up 1.2% to 192. The Standard & Poor's Banking Index ($BIX.X) was up 1.9% to 266. It had been down as much as 2%. Citigroup finished up 3 cents to $25.08. Wachovia (WB, news, msgs) rose 3% to $34.33.

• Get free, real-time stock quotes on MSN Money

The market received additional good news after the close when the Food and Drug Administration approved an accelerated approval for Genentech's (DNA, news, msgs) cancer-fighting drug Avastin for use in treating breast cancer.

Genentech shares were up 9% in after-hours trading to $77.99. The shares had been down slightly to $71.60 in regular trading.

Until the turnaround, financial shares were down

Financial stocks had been weak for most of the day after Merrill Lynch downgraded Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), two of the biggest suppliers of mortgage capital. The brokerage cut ratings on both stocks from "hold" to "sell," saying weakness in housing, credit and financial markets will weigh on the pair's earnings "for years."

Both companies are likely to report significant losses, the brokerage said.

Fannie Mae, once down as much as 6.1%, finished down just 1% to $28.72. Freddie Mac, which reports fourth-quarter earnings on Thursday, saw a 9.4% loss slim down to just 4.11% at $26.61.

Techs were held back by weakness in Apple (AAPL, news, msgs), down 1.7% to $119.46. Google (GOOG, news, msgs) had dropped to as low as $497.55 but rebounded in the late-day rally to $507.80, up 1% on the day. Chip giant Intel (INTC, news, msgs) fell 2.4% to $19.82, the laggard among the 30 Dow stocks.

Microsoft was off 1.5% to $27.68. (Microsoft is the publisher of MSN Money.)

Apple is down about 40% this year; Google is down nearly 27%, Intel 26% and Microsoft 22%.

Crude oil closed up 58 cents to $98.81 a barrel in New York on Friday. Energy stocks moved higher with the move. The Amex Oil Index ($XOI.X) was up 1.1% to 1,412. ExxonMobil (XOM, news, msgs) was up 0.3% to $87.17; Chevron (CVX, news, msgs) added 0.8% to $85.42.

Friday's rally gives the Dow a gain for week

The market's wild finish on Friday gave the Dow and the S&P 500 small gains for the week. The Dow is down 6.7% on the year, and the S&P 500 is off 7.9%. The Nasdaq finished down 0.8% on the week and is down 13.2% on the year.

Volume was light on the New York Stock Exchange, just 1.4 billion shares. But Nasdaq volume hit 2.3 billion shares, about 15% above average.

Twenty-five of the 30 Dow stocks finished higher on the day, along with 392 S&P 500 stocks and 67 Nasdaq-100 ($NDX.X) stocks.

While Ambac was the S&P 500 leader, American International Group (AIG, news, msgs) was the Dow's leader with a 2.7% gain to $48.88.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	12,381.02	12,348.21	0.27%	-6.66%
S&P 500	1,353.11	1,349.99	0.23%	-7.85%
Nasdaq Composite	2,303.35	2,321.80	-0.79%	-13.16%
Russell 2000	695.43	701.52	-0.87%	-9.22%
Crude oil per barrel	$97.91	$95.50	3.47%	2.95%
10-yr. Treasury yield	3.79%	3.78%	0.26%	-6.07%
Gold per troy ounce	$947.80	$906.10	4.60%	13.10%

Ahead next week: Housing GDP and Bernanke

As welcome as Friday's rebound was, the financial markets still face several important economic reports:

• Existing-home sales for January from the National Association of Realtors on Monday and new-home sales for January from the Commerce Department on Wednesday.

• Producer prices from the Labor Department on Tuesday.

• Durable goods orders from the Commerce Department on Wednesday.

• Gross Domestic Product and Fed Chairman Bernanke's testimony on Thursday.

The earnings reports coming next week include Lowe's (LOW, news, msgs) and Nordstrom (JWN, news, msgs) on Monday; Home Depot (HD, news, msgs), Macy's (M, news, msgs), CBS (CBS, news, msgs) and Sirius Satellite Radio (SIRI, news, msgs) on Tuesday; home builder Toll Bros. (TOL, news, msgs) on Wednesday; and Kohl's (KSS, news, msgs) and computer maker Dell Inc. (DELL, news, msgs) on Thursday.

Does anyone want Motorola's cell-phone business?

Things aren't connecting at Motorola (MOT, news, msgs).

The cell-phone company is having trouble finding a buyer for its handset business, The Wall Street Journal reported Friday. Earlier this month, Motorola said it was exploring options, including a possible sale of the disappointing business, but rivals Nokia (NOK, news, msgs), Samsung Electronics and LG Electronics aren't interested, the paper wrote.

"I think going public with its intentions hasn't made it easier to find a solution and has raised doubts about Motorola's commitment to the business," Ittai Kidron, an analyst at Oppenheimer & Co., told The Journal.

Shares of Motorola were down 4 cents at $11.24 this afternoon. Shares have fallen 40% over the past year.

Motorola has been struggling with its stock price and the competitive marketplace in recent months.

The company's handset business lost $388 million in the fourth quarter of 2007 and a total of $1.2 billion for the year. The business makes up about half of the company's total revenue.

Phone shipments plunged 38% in the fourth quarter, and new CEO Greg Brown said phone sales will continue to fall for the next several months.

Motorola separately announced late Thursday that private-equity executive Paul Liska will be the company's new chief financial officer.

Liska is replacing Tom Meredith, who has been acting CFO since March.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$98.81	$98.23	$0.58	7.69%	2.95%
Heating oil (per gallon)	$2.7630	$2.7381	$0.0249	9.02%	4.29%
Natural gas (per million BTU)	$9.1460	$8.8910	$0.2550	13.28%	22.22%
Unleaded gasoline (per gallon)	$2.5337	$2.5222	$0.0115	9.73%	1.72%

Slow times on Wall Street

Wall Street watchers say merger action may be slow for a while.

Leveraged buyouts will likely continue to taper, Merrill Lynch (MER, news, msgs) Chief Operating Officer Greg Fleming told Reuters late Thursday, although strategic mergers could start to pick up in the second half of this year, he said.

So far in 2008, global mergers and acquisitions are down 25% to $392 billion, according to data from Dealogic. Announced buyouts for the year are down about 53% to $27 billion from $58 billion, Dealogic said.

Fleming indicated that Merrill will take its time with its own deals. "We are conscious of the environment. We are watching expenses and cutting where we think it makes sense, but we want to be well positioned when the cycle turns," Fleming told Reuters.

Shares of Merrill finished up 4.2% Friday to $53.05.

Intuit profit falls, stock slumps

Shares of financial-software company Intuit (INTU, news, msgs) were off 9.2% to $27.05 Friday. Late Thursday, the company cut guidance for its fiscal second quarter. Intuit, maker of the popular TurboTax program, reported fiscal-second-quarter profit of $115.2 million, or 34 cents a share, down 21% from net income of $145.4 million, or 40 cents a share, a year ago.

Results were in line with analysts' expectations.

Total revenue rose 11% to $834.9 million, but sales at the company's professional tax business fell 19% to $105.4 million.

The company lowered its forecast for the current quarter to between $1.31 and $1.34 per share, below the consensus estimate of $1.37 per share.

US in auto recession?

Are we in a recession or not? That question has been the subject of much debate over the past few months.

While some economists say the U.S. economy is already in a recession and others say we're not there yet, Nissan Motor (NSANY, news, msgs) CEO Carlos Ghosn believes the U.S. auto industry is there.

"We are very lucid on the situation of the industry, that there is a recession in the United States, at least in the car market," Ghosn told reporters in South Korea Friday. Soaring prices for commodities like aluminum and other metals are weighing on the automakers, Ghosn said.

Still, Ghosn said there was a light at the end of the tunnel, adding that the U.S. auto industry "will not stay in a recession for a long time."

• Where a recession is already hitting hard

Shares of U.S. automaker Ford Motor (F, news, msgs) were up 0.3% to $6.25 on the day; General Motors (GM, news, msgs) shares finished down 0.9% to $24.08. Nissan was off 0.7% to $17.91 in New York.

Dollar continues to be weak

The euro jumped against the U.S. dollar this morning as sentiment toward the greenback fell on the likelihood that the Federal Reserve will continue to cut interest rates. The euro rose to $1.4861 before settling back to $1.4839.

The euro is rising against the dollar because the European economy doesn't seem to be crumbling as much as the U.S. economy, Boris Schlossberg of DailyFX.com said on CNBC this morning.

"The dollar is generally coming under pressure because of the divergence we're seeing among central-bank policy approaches to the current environment," said Ian Stannard, currency strategist at BNP Paribas, to Bloomberg News. "The Fed has demonstrated that it's very much focused on growth concerns, while the European Central Bank is likely to continue with quite hawkish comments."

The Fed's moves to lower interest rates pressure the dollar because lower interest rates make dollar-based investment vehicles, like Treasurys, less attractive to foreign investors. Over the past five months, the Fed has cut the federal funds rate to 3% from 5.25%.

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

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	2.140%	2.140%	0.000	14.44%	-31.85%
5-year Treasury note yield	2.801%	2.807%	-0.006	-0.88%	-18.93%
10-year Treasury note yield	3.790%	3.784%	0.006	4.15%	-6.07%
30-year Treasury bond yield	4.582%	4.553%	0.029	5.24%	2.76%
Currencies
U.S. Dollar Index	75.555	75.650	-0.095	0.36%	-1.49%
British pound in dollars	$1.9681	$1.9643	0.0039	-1.18%	-1.06%
Dollar in British pounds	£0.5081	£0.5091	-0.0010	1.19%	1.07%
Euro in dollars	1.4839	1.4828	0.0011	-0.21%	1.53%
Dollar in euros	€ 0.6739	€ 0.6744	-0.0005	0.21%	-1.51%
Dollar in yen	107.16	107.27	-0.11	0.70%	-4.19%
U.S. dollar in Canadian dollars	$0.988	$1.011	-$0.0016	-1.19%	-0.52%
Canadian dollar in U.S. dollars	$1.013	$0.988	$0.0013	1.22%	0.54%
Commodities
Gold	$947.80	$949.20	-$1.40	4.60%	13.10%
Copper	$3.8030	$3.8220	-$0.02	7.46%	25.06%
Silver	$18.0350	$17.9500	$0.09	5.36%	20.88%
Crude oil (NYMEX) (per barrel)	$98.81	$98.23	$0.58	3.47%	2.95%