Dow jumps 277 as oil falls, Wells Fargo delights

By Charley Blaine and Elizabeth Strott

Lower crude oil and better-than-expected earnings from Wells Fargo (WFC, news, msgs) unleashed a huge stock rally today, giving investors a lot to cheer about.

Wells Fargo's earnings -- and a 10% increase in its quarterly dividend -- sent bank and brokerage stocks higher for the first time after five straight days of losses. Wells Fargo was up nearly 33% to $27.23.

The Dow Jones industrials, led by Bank of America's (BAC, news, msgs) 22% gain to $22.67, closed up about 277 points, or 2.5%, to 11,239. The Standard & Poor's 500 Index added 30 points, or 2.5%, to 1,245, and the Nasdaq Composite Index was up 69 points, or 3.1%, to 2,285.

Today's were the biggest one-day point and percentage gains for the Dow and S&P 500 since April 1. It was the biggest one-day gain for the Nasdaq since March 18. The KBW Bank Index ($BKX) was up 17% to 57, its biggest one-day percentage gain.

Crude oil, meanwhile, closed down $4.14 a barrel to $134.60, its second big decline in two days. Crude is down 7.3% from Friday's close and off 8.6% from its intraday high of $147.27, set on Friday. Energy stocks were all lower. The Amex Oil Index ($XOI.X) was down 2.1% to 1,324, and the Philadelphia Oil Service Sector Index ($OSX.X) was off 1.1% to 318. The Amex Natural Gas Index ($XNG.X) was down 2.2% to 648. Airline stocks shot higher.

Crude fell after the Energy Department's inventory data showed an increase of 3 million barrels last week; analysts had expected a decline of 3 million barrels. The price of crude fell $6.44 on Tuesday, the biggest one-day dollar decline in the commodity in 17 years.

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

Merrill Lynch (MER, news, msgs), which reports second-quarter earnings Thursday, was up 13.3% to $28. CNBC reported the brokerage house has sold its 20% stake in Bloomberg News for $4.5 billion. It is holding onto its 49% stake in BlackRock, the money management firm.

• Video: CNBC looks at the Merrill Lynch's sale of its Bloomberg stake

It's unclear whether today was simply a short-covering rally caused by short-sellers who were buying shares to lock in profits. A one-day rally won't answer the question.

But the market could move higher if:

• Earnings from Merrill Lynch and JPMorgan Chase (JPM, news, msgs), due Thursday, and from Citigroup (C, news, msgs) on Friday offer signals that all have clear ideas of how to fix their problems.

• The S&P 500 passes 1,257 -- which was its mid-March low.

• Crude oil continues to move lower. (But lower oil could also weaken oil stocks further. ExxonMobil (XOM, news, msgs) is down about 16% from its intraday high of $96.12.

Thursday is a monster day for earnings. In addition to Merrill Lynch and JPMorgan, reports are due from Coca-Cola (KO, news, msgs), IBM Corp. (IBM, news, msgs), Google (GOOG, news, msgs), Microsoft (MSFT, news, msgs)and Advanced Micro Devices (AMD, news, msgs). (Microsoft is the publisher of MSN Money.)

• Video: What to watch for in the markets on Thursday

Wells Fargo's earnings light a fire

Wells Fargo met Wall Street's desperate need for good news by boosting its dividend to 34 cents per share.

"In broad terms, the credit crisis has created incremental earnings opportunities for Wells Fargo, largely offsetting our incremental charge-offs from the crisis," Chief Financial Officer Howard Atkins said in a statement.

The dividend increase came despite a 23% decline in second-quarter profit. The bank earned $1.75 billion, or 53 cents per share -- a drop from the $2.28 billion, or 67 cents per share, it earned in the same quarter last year, but 3 cents per share higher than the consensus estimate. It was the third straight quarter of profit declines.

Wells Fargo also said it took a provision of $3 billion in the quarter for credit losses.

Wells Fargo's news helped boost other banks: In addition to Bank of America's big gain, Citigroup rose 13.1%, to $16.47, and JPMorgan Chase was up 15.9% to $35.94. Wachovia (WB, news, msgs) shot up 16% to $10.54, and Washington Mutual (WM, news, msgs) soared 25% to $4.53.

Fannie Mae (FNM, news, msgs) was up nearly 30.8% to $9.25, and Freddie Mac (FRE, news, msgs) jumped nearly 29.9% to $6.83 after days of battering. (Through Tuesday, the stocks had fallen more than 64% each just since July 1.)

Fannie Mae and Freddie Mac appeared to gain because of the Securities and Exchange Commission's order Tuesday prohibiting naked short selling. The order doesn't take effect until Monday, but for Fannie and Freddie, the upcoming rule did seem to have cleared out speculators who had been betting the stocks would continue to move lower.

Another winner: investment bank Lehman Bros. (LEH, news, msgs), which was up 26% to $16.65.

But at least one analyst was cautious. "I wouldn't necessarily say this is the all-clear for the industry," said Bradley Vander Ploeg of Raymond James on CNBC. Wells Fargo is "better positioned to take advantage of weakness" among other banks.

Weak forecast hits eBay shares

Shares of online auctioneer eBay (EBAY, news, msgs) fell more than 6.6% to $236.24 in after-hours trading after the company forecast a weak third quarter. EBay left full-year estimates unchanged in the face of a weaker U.S. economy.

The outlook overshadowed a 22% rise in second-quarter net profit, helped by a surge in listings and share buybacks.

Analyst Stephen Ju of RBC Capital, noted that while eBay slightly beat estimates in the second quarter, the company basically stuck to its previous full-year goals instead of raising them, as some investors had hoped. But, he added, "Why set yourself up with a high hurdle in the current economic environment?"

• Video: CNBC's Jim Goldman looks at eBay's earnings

EBay said it expects third-quarter revenue to range between $2.10 billion and $2.15 billion. Earnings will be between 39 cents and 41 cents. Analysts have been looking for $2.2 billion in revenue and 41 cents a share in earnings.

Second-quarter net income rose to $460 million, or 35 cents per share, from $376 million, or 27 cents per share, a year earlier. Earnings growth was higher than net income because the company bought back 19 million shares. Revenue was up 20% to $2.2 billion.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$134.60	$138.74	-$4.14	-3.86%	40.24%
Heating oil (per gallon)	$3.8410	$3.9190	-$0.0780	-1.59%	44.98%
Natural gas (per million BTU)	$11.3980	$11.4770	-$0.0790	-14.64%	52.32%
Unleaded gasoline (per gallon)	$3.2794	$3.3848	-$0.1054	-6.34%	31.66%

Inflation's surge a worry for the Fed

This morning's Labor Department report on consumer prices supported the Federal Reserve's concerns about inflation. The Consumer Price Index jumped 1.1% in June, the biggest monthly increase since June 1982. Excluding volatile food and energy prices, the core CPI rose 0.3%.

Economists had expected the headline number to rise 0.7% last month, with the core number up 0.2%.

On a year-over-year basis, the CPI was up a whopping 5% from June 2007, the highest rate since May 1991, and the core CPI was up 2.4%.

The Fed's "comfort zone" for core inflation is between 1.5% and 2% a year.

Energy prices soared 6.6% in June, with gasoline prices jumping 10.1%.

• Talk back: Are you worried about inflation?

Inflation has been a concern for the Federal Reserve, and Fed Chairman Ben Bernanke highlighted that again this morning on Capitol Hill. Speaking to the House Financial Services Committee, Bernanke said "inflation currently is too high."

"It is a top priority of the Federal Reserve to run a policy to bring inflation to an acceptable level consistent with price stability as we go forward," Bernanke said.

On Tuesday, Bernanke told the Senate Banking Committee that the financial markets remain under "considerable stress" because of the mortgage market meltdown; he also noted that inflation remains a major concern for the central bank.

Minutes from the June 24-25 Federal Open Market Committee meeting signaled the Fed would likely leave rates alone amid continuing uncertainty about the outlook for the markets, economy and inflation.

Still, Fed officials suggested that they were growing more concerned about inflation than economic growth, while still seeing "significant downside risks" to growth.

Microsoft and AOL hold talks on tie-up

Microsoft was planning to meet with executives from Time Warner's (TWX, news, msgs) AOL today to advance discussions on a possible tie-up, The Wall Street Journal said.

The discussions are an alternative to a deal with Yahoo (YHOO, news, msgs).

Microsoft and Time Warner have been casually exploring a combination of AOL and Microsoft's online group for several months as an alternative to Microsoft's failed efforts to buy part or all of Yahoo.

The discussions remain preliminary, with the shape of a deal yet to be sketched out. However, an AOL team has traveled to Seattle for the talks, sources told The Journal.

Microsoft was up 4.2% to $27.26. Yahoo was up 4.4% to $22.48. Time Warner was up 5.2% to $14.65.

Strong demand boosts Intel

The broader economy may be slowing across the country, but Intel (INTC, news, msgs) doesn't seem to be feeling it.

The chipmaker late Tuesday reported a 25% jump in second-quarter profit and a 9% increase in revenue. Intel earned $1.6 billion, or 28 cents per share, up from $1.28 billion, or 22 cents per share, in the same quarter last year. The results beat Wall Street's estimate by 2 cents.

Revenue came in at $9.47 billion, also beating the consensus estimate of $9.32 billion.

The Dow component's shares were up 1% to $20.91.

Intel said revenue for the current quarter will be between $10 and $10.6 billion; analysts are looking for sales of $10 billion.

"Demand remains strong for our microprocessor and chipset products in all segments and all parts of the globe," said Intel Chief Executive Officer Paul Otellini in a press release.

One analyst was impressed by the results.

"The fact that they are maintaining guidance and said they see no slow-up in demand is very positive," said Michael Shinnick, portfolio manager at First Source Bank, to Bloomberg News. "We are getting data that the tech sector is doing better than other sectors in this economy."

Intel's earnings -- and decent earnings from Sun Microsystems -- helped the Philadelphia Semiconductor Index ($SOX.X) jump 3.7% to 360, with all 19 stocks in the index ahead on the day.

Worries about demand hit oil

The weakening economy is finally taking its toll on the oil market.

Oil slumped more than $6 a barrel on Tuesday as concerns about deterioration in demand started to filter into the markets.

The Organization of Petroleum Exporting Countries lowered its demand forecast for 2008 Tuesday to an increase of 1.2% from a previous forecast of a 1.28% increase for the year.

"Signs of economic contraction and financial-market malaise are becoming harder and harder to ignore," said John Kilduff, an analyst at futures brokerage MF Global, to MarketWatch.

Oil is still up about 45% for the year.

Delta, AMR report losses

The surge in oil has slammed the airline industry, causing Delta Air Lines (DAL, news, msgs) and AMR's (AMR, news, msgs) American Airlines to report huge second-quarter losses.

But stocks in the group soared anyway because of the oil price drop.

Delta this morning reported a loss of $1.04 billion, or $2.64 per share -- a decline from the profit of $164 million, or 42 cents per share, it earned last year. Excluding charges, Delta said it earned 35 cents per share, topping analysts' estimate of 10 cents per share.

AMR reported a loss of $1.45 billion, or $5.77 per share, down from a profit of $317 million, or $1.08 per share, in the same quarter a year ago. Excluding charges, AMR lost $1.13 per share; analysts were expecting a per-share loss of $1.40.

Shares of Delta shares jumped 26.6% to $5.91 this afternoon; AMR shares were up 32% to $5.82.

"Our company continues to be severely challenged by the fuel crisis that has afflicted our entire industry, and we expect these difficulties to continue for the foreseeable future," said AMR chief Gerard Arpey in a statement.

Those challenges could mean bankruptcy for some airlines, according to a report from Fitch Ratings.

"The U.S. industry's current structure is unsustainable in the current fuel environment," said William Warlick, Fitch senior director. "All the U.S. legacy carriers will see a rapid erosion of cash levels that could threaten their survival in 2009 if adverse fuel trends continue," the report said.

The most troubled airlines include UAL's (UAUA, news, msgs) United Airlines, Delta, US Airways (LCC, news, msgs) and JetBlue (JBLU, news, msgs), the report said, adding that American Airlines and Continental Airlines (CAL, news, msgs) were in "stable" shape.

UAL was up nearly 42% to $4.43 today. Continental was up 38.2% to $9.19. JetBlu jumped 21.4% to $3.86, and US Airways was up 27.3% to $2.24.

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

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.345%	1.375%	-0.030	-21.11%	-57.17%
5-year Treasury note yield	3.186%	3.109%	0.077	-4.64%	-7.79%
10-year Treasury note yield	3.934%	3.844%	0.090	-1.13%	-2.50%
30-year Treasury bond yield	4.582%	4.474%	0.108	1.13%	2.76%
Currencies
U.S. Dollar Index	72.335	72.130	0.205	-0.64%	-5.68%
British pound in dollars	$1.9992	$2.0060	-0.0068	0.30%	0.50%
Dollar in British pounds	£0.5002	£0.4985	0.0017	-0.30%	-0.50%
Euro in dollars	$1.5840	$1.5929	-0.0088	0.57%	8.38%
Dollar in euros	€ 0.6313	€ 0.6278	0.0035	-0.57%	-7.73%
Dollar in yen	104.76	104.63	0.13	-1.35%	-6.34%
Canadian dollar in U.S. dollars	$0.999	$0.999	-$0.0002	1.94%	0.60%
U.S. dollar in Canadian dollars	$1.002	$1.002	-$0.0002	-1.87%	-0.58%
Commodities
Gold	$962.70	$978.70	-$16.00	3.71%	14.88%
Copper	$3.6505	$3.7000	-$0.05	-5.98%	20.04%
Silver	$18.8050	$19.0130	-$0.21	7.40%	26.04%
Corn	$6.5850	$6.4825	$0.10	-9.14%	44.57%
Crude oil (NYMEX) (per barrel)	$134.60	$138.74	-$4.14	-3.86%	40.24%