Stocks rebound; gold tops $1,000

By MSN Money staff with wire reports

Stocks rebounded from an early plunge to finish moderately higher today, after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that have devastated the stock and credit markets.

Meanwhile the U.S. dollar fell to a record low, pushing gold above $1,000 an ounce and oil to close above $110 a barrel for the first time.

The Dow Jones Industrial Average rose 36 points to 12,145, recovering from a loss of more than 200 points this morning.

The Standard & Poor's 500 Index rose 7 points to 1,315 and the Nasdaq Composite Index rose 20 points to 2,263.

Weighing on the markets was news that Carlyle Group's bond hedge fund is about to collapse and of more trouble at investment bank Bear Stearns.

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The dollar fell below 100 yen, its weakest level against the Japanese currency in 12 years. The dollar also dropped to all-time lows against the euro.

The tide began to turn after the S&P projection gave investors some hope that the seemingly unrelenting losses from the mortgage and credit crisis might be bottoming out.

Standard & Poor's Ratings Services said it estimates write-downs of subprime asset-backed securities could reach $285 billion globally -- an increase of $20 billion from its previous projection -- but added that "the end of write-downs is now in sight for large financial institutions."

"The S&P comment was a positive for the market because investors were relieved to think that the subprime problem may be behind us," said Al Goldman, chief market strategist at A.G. Edwards.

Wall Street clearly remains anxious, however. On Tuesday, the stock market launched its largest rally in more than five years after the Federal Reserve said it would auction $200 billion in Treasurys to help alleviate investment banks' financial bind. But since then, stocks have been extremely volatile.

Kim Caughey, equity research analyst at Fort Pitt Capital Group, said that while she is a market bull, it's possible investors extrapolated a bit too much good news from the S&P report. "I would rather see fewer foreclosures and housing prices bottoming out to decide that the credit crisis is drawing to a close," she said.

Gold set records as dollar falls

After reaching $1,001 on the New York Mercantile Exchange, gold for April delivery dropped slightly to $999.70 by midmorning Thursday.

The price still doesn't match the all-time high of $850 in 1980, if that price is adjusted for inflation. An $850 ounce of gold then would be worth $2,177 in today's dollars.

The $1,000-an-ounce price is still a milestone and shows that investors are continuing to abandon the dollar.

Gold has been pushing up against the $1,000 mark for weeks, mainly because of the weaker dollar. Interest rate cuts -- and the prospect of more on the way -- have weakened the currency so much that foreign investors can buy dollar-based commodities like gold and oil more cheaply.

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Crude-oil futures hit a record high above $110 a barrel Thursday, after first crossing that level Wednesday, also because of investors abandoning the weak dollar.

Investors have been expecting gold futures to rise to $1,000 as they watched the dollar spiral lower, said Scott Meyers, senior trading analyst with Pioneer Futures, a division of MF Global. Gold has been steadily creeping closer to the record after rising nearly 32% in 2007.

The dollar's decline and the boost in the price of oil price merely added the extra push.

"We're getting a scenario where commodities are the place to be today," Meyers said. "With the weak dollar, it's hard to be against them."

Meyers declined to speculate on how high gold could go, saying, "to pick a top is a foolish game to play at this juncture."

The Federal Reserve's meeting next week could provide more encouragement for gold prices. The Fed is widely believed to be considering cutting interest rates again, which could reduce the dollar's value further, making gold an even better investment.

Questions about the Fed's move Tuesday to boost liquidity were also on people's minds. "One bold move by the Fed doesn't solve all the problems and all the issues," said Georges Yared, chief investment officer at Yared Investment Research, to Reuters. "People are trying to assess how the Fed's move will begin to benefit corporate earnings and move the banks along to start loaning money.

All about the dollar

Wall Street seems to believe that oil will rise until the dollar firms.

"This market is not about supply and demand, it's about the dollar," said Alaron senior analyst Phil Flynn, to CNNMoney.com. "The dollar is weaker, and investors are buying anything they can get their hands on."

The dollar continued to fall against the major currencies after President Bush told PBS's Nightly Business Report Wednesday that "we have a dollar that's adjusting." Bush declined to say that the economy is in a recession but acknowledged that "times are rough."

The value of the euro against the dollar rose to $1.5574 in midday trading. The euro is now stronger against the dollar than it has been at any time since it was introduced in 1999. The U.S. currency dipped below 100 against the Japanese yen for the first time since November 1995. The dollar was trading at 100.16 against the yen at midday, after falling to a low of 99.75 earlier in trading.

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"The U.S. dollar is facing a lot of headwinds," said Drew Matus, senior financial economist at Lehman Bros. (LEH, news, msgs) to CNBC this morning. "We have slowing growth, so we don't get those people who want to invest in the U.S. and take advantage of growth, and we don't get the people who want to take advantage of interest rates because . . . you get higher interest rates elsewhere. We have this double whammy. On top of it you still have this . . . credit-crunch story going on."

Because weakness in the dollar is linked to the Fed's efforts to fight the credit crisis, the currency will likely remain under pressure until the Fed's next steps become clear at next week's Federal Open Market Committee meeting.

The Fed is expected to lower its key lending rate to 2.25%, from 3%. The Fed has lowered interest rates from 5.25% since September -- in an effort to turn back a recession, but so far there has been little indication the cuts are working.

More data to watch

Key reports on inflation -- the Producer Price Index and the Consumer Price Index -- will be released Friday and Tuesday, respectively. In January, both the PPI and CPI rose more than expected.

Meanwhile, there were further signs of weakness in the U.S. economy. Retail sales fell 0.6% in February, the Commerce Department reported this morning. Economists had expected retail sales to be unchanged last month, following a 0.4% gain in January.

Excluding auto sales, retail sales fell 0.2% in February.

Paulson seeks to overhaul credit rules

As the credit crunch and mortgage mess continue to dominate the markets, top economic policymakers are offering ideas that might help get things back on track.

U.S. Treasury Secretary Hank Paulson has teamed up with Fed chief Ben Bernanke to propose new regulations.

• Video: Paulson talks about the credit markets

"Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it," Paulson said in a speech to the National Press Club in Washington, D.C. "We have learned many lessons."

Proposed changes include strengthening state and federal oversight of mortgage brokers and lenders, ensuring that rating firms disclose any conflicts of interest and encouraging issuers of mortgage-backed securities to disclose more about the assets backing those securities.

Securities based on subprime mortgages were a growing profit center among financial-services companies until last year. About $1.2 trillion in subprime securities were sold by investment banks in 2005 and 2006, according to Global Insight.

This year, financial-services companies have reported more than $188 billion in credit and mortgage-related losses, Bloomberg statistics show.

Carlyle fund expected to default

Carlyle Capital, the bond fund affiliated with private-equity firm The Carlyle Group, said late Wednesday that it has defaulted on $16.6 billion of its debt and expects to default on the remaining debt. It said it expects that lenders will soon take over all of its remaining assets.

Carlyle Capital has "not been able to reach a mutually beneficial agreement to stabilize its financing," the letter stated.

• Video: Carlyle Capital in default

Last week, Carlyle Capital said it had failed to meet four of seven margin calls totaling more than $37 million. Carlyle had asked banks including JPMorgan Chase (JPM, news, msgs) and Deutsche Bank (DB, news, msgs) to hold off on margin calls, The Wall Street Journal reported, but the banks dismissed the requests.

Carlyle's portfolio was not packed with the risky subprime mortgages and collateralized debt obligations that have made most of the headlines lately; rather, it was made up of AAA mortgages that were backed by Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs). "This is not only a problem for Carlyle," said Jochen Felsenheimer, credit strategist at UniCredit in Munich, in a note to clients reported by Bloomberg. "We expect a further flood of downgrades especially of higher-rated securities, putting enormous pressure on the system."

Subprime slams another fund

Carlyle Capital isn't the only fund in trouble today. High-profile New York hedge fund firm Drake Management could be closing its biggest hedge fund.

In a letter to shareholders Wednesday, managers of Drake Management's Global Opportunities fund said that they are mulling options for the fund.

Drake told shareholders they could no longer withdraw their investments from the fund "due to a combination of sharply negative performance and the extreme volatility and illiquidity of certain capital markets over the past six months," the letter stated. "It would seem more probable that the market disruptions we have experienced will not abate in the short term, but will instead continue for some time."

The one-time $4 billion fund, which was started and is run by former Blackstone (BX, news, msgs) money managers Anthony Faillance and Steve Luttrell, could be liquidated, the letter stated. The fund lost more than 20% in 2007, according to one estimate.

Drake's fund is one of many that have been hit by the mortgage mess. Bear Stearns' (BSC, news, msgs) in July said that two of its funds had lost nearly all of their value, and Goldman Sachs' (GS, news, msgs) Global Alpha fund plunged 40% in 2007.

Electronic Arts goes hostile

Video-game maker Electronic Arts (ERTS, news, msgs) this morning launched a tender offer of $26 per share for Take-Two Interactive (TTWO, news, msgs) in hopes that Take-Two shareholders would be more likely to accept the $2 billion deal.

Take-Two had rejected Electronic Arts' offer last month. Take-Two had said it would talk with Electronic Arts about a possible deal only after its popular "Grand Theft Auto IV" video game is released on April 29.

EA's tender offer will expire on April 11, the day after Take-Two's shareholder meeting.

Shares of Take-Two rose 73 cents, or 2.9%, to $25.64 and Electronic Arts was flat at $47.26.