Energy, financial stocks boost market

By Charley Blaine and Elizabeth Strott

Energy stocks moved higher today as Tropical Storm Gustav slowly moved toward oil-and-gas production facilities in the Gulf of Mexico. Financial stocks rallied, too, and stocks overall ended the day with modest gains.

The Dow Jones industrials, once up as much as 141 points, closed with a 90-point gain, or 0.8%, at 11,503. The Standard & Poor's 500 Index gained 10 points, 0.8%, to 1,282. And the Nasdaq Composite Index finished up 20 points, 0.9%, to 2,382.

But volume was extremely light because many investors and traders were on vacation. New York Stock Exchange volume was less than 800 million shares; 1.6 billion shares is normal. Nasdaq volume barely hit 1.57 billion shares, well below the 2.2 billion-share average.

Energy was the strongest sector of the market as crude oil rose to $118.15 a barrel, up $1.88 from Tuesday. Most weather forecasts said Gustav would intensify back into a Category 3 hurricane and make landfall Monday along the Gulf Coast of Mississippi or Louisiana.

The Gulf is home to about one-fifth of all U.S. oil production and about 16% of the nation's natural-gas output, and any disruption to operations there would push oil, natural-gas and gasoline prices higher.

The Amex Oil Index ($XOI.X) rose 1.9% to 1,343 today. The Amex Natural Gas Index ($XNG.X) was up 1.4% to 617, and the Philadelphia Oil Service Sector Index ($OSX.X) was 1.1% to 303.

Oil refiner Valero (VLO, news, msgs) jumped 4.2% to $35.02. Chevron (CVX, news, msgs) rose 1% to $86.62.

Adding a little buying pressure to energy prices was the weekly supply data from the Energy Department. Oil supplies fell by 100,000 barrels last week; analysts had expected oil supplies to increase by 1 million barrels.

Gasoline supplies fell by 1.2 million barrels, and distillate supplies were unchanged.

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The storm's threat, oil analyst Peter Beutel of Cameron Hanover wrote in a daily note to clients, "may be the one factor that can out-duel the dollar for the minds of traders."

The dollar has made gains in the past few weeks as oil prices have come down from reaching an all-time high of $147.27 a barrel July 11. The dollar and oil generally move in opposite directions; when the dollar rises, oil becomes more expensive for foreign investors because crude is denominated in dollars, and vice versa.

Many traders were unimpressed even with today's oil price gains. They were expecting a serious storm threat to push oil and gasoline prices much higher. And, they say, if the storm does little damage or misses the oil-and-gas region, look for oil prices to drop substantially.

A little worry about financials

Financial stocks rallied as fears eased that a government bailout of Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) was imminent.

Fannie Mae and Freddie Mac were up 15.3% to $6.48 and 19.7% to $4.75, respectively. Their percentage gains were the largest among S&P 500 stocks.

The only news from either was a management shuffle at Fannie Mae. Financial chief Stephen Swad, Chief Business Officer Robert Levin and head of risk management Enrico Dallavecchia will all leave, the company said. CEO Daniel Mudd remains.

Bank of America (BAC, news, msgs) was the leader among the 30 Dow stocks, with a 2.2% gain to $29.65.

The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund, which tracks the financial sector of the S&P 500, was up 1.9% to $20.56. Citigroup (C, news, msgs) added 1.6% to $18.12. JPMorgan Chase (JPM, news, msgs) was up 1.5% to $37.14.

Investment banks Lehman Bros (LEH, news, msgs) and Merrill Lynch (MER, news, msgs) rose 5.4% to $14.78 and 4.9% to $25.27, respectively.

Boeing (BA, news, msgs) rose 1.7% to $64.52 and added about 9 points to the Dow.

A decent day for techs before Dell earnings

Meanwhile, tech stocks had a decent day, led by Qualcomm (QCOM, news, msgs), Apple (AAPL, news, msgs), Microsoft (MSFT, news, msgs) and Research In Motion (RIMM, news, msgs). (Microsoft is the publisher of MSN Money.)

Computer maker Dell (DELL, news, msgs) was up 1.8% to $25.63. The company will report fiscal-second-quarter earnings after Thursday's close. The Reuters estimate is 36 cents a share in earnings, up 12.5% from a year ago. Revenue should be up 8% to $16 billion. The stock is up 41% since bottoming in mid-April and is sporting a 4.6% gain on the year.

Google (GOOG, news, msgs) was off 1.2% to $468.58.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$118.15	$113.01	$1.88	-4.78%	23.10%
Heating oil (per gallon)	$3.2617	$3.2099	$0.0518	-5.15%	23.11%
Natural gas (per million BTU)	$8.3940	$8.2780	$0.1160	-7.95%	12.17%
Unleaded gasoline (per gallon)	$3.0672	$2.9697	$0.0975	0.63%	23.14%

Durable-goods orders rise

Helping to offset the worries about Gustav and oil prices was a better-than-expected report on durable-goods orders, which rose 1.3% in July. The Commerce Department report came as a big surprise; economists' predictions had ranged from a 0.4% decline to a 0.1% gain last month.

Excluding orders for transportation goods, orders rose 0.7% in July.

"Most encouraging, demand from non-aircraft capital goods rose 2.6%, double the June gain, to reach the highest level in two years," Nomura chief economist David Resler wrote in a note to clients after the report was released. "This suggests the credit crunch is not having (the) profoundly adverse impact on capital spending that most economists (myself included) assumed it would."

Durables are goods that are made to last at least several years, such as appliances, cars and aircraft. Orders of such goods indicate how the manufacturing sector is faring and show consumer spending trends.

Mortgage applications rise

The housing slump has been pressuring many Americans, forcing thousands into foreclosure.

Despite the grim outlook for the sector, a report on mortgage applications showed the first increase in three weeks, the Mortgage Bankers Association said this morning. The group's Market Composite Index rose 0.5% last week to a reading of 421.6.

Mortgage applicants were likely attracted to lower interest rates: Rates for 30-year fixed mortgages fell to 6.44% from 6.47% last week, and 15-year fixed rates fell to 5.94% from 5.99%.

Banks' worst quarter since 1991

If you still aren't convinced of the pain the credit crunch has caused, here's more proof: The Federal Deposit Insurance Corp. late Tuesday said banks' earnings for the second quarter were $5 billion, a whopping 86% plunge from the $36.8 billion banks earned in the same quarter of 2007.

"Quite frankly, the results were pretty dismal, and we don't see a return to the high earnings levels of previous years anytime soon," FDIC Chairwoman Sheila Bair said at a news conference.

The FDIC also said that that the number of banks on its "problem list" rose about 30%, from 90 to 117, in the first quarter of the year.

FDIC slammed by IndyMac

The failure of mortgage lender IndyMac Bancorp in July has hit the FDIC: It will cost the agency about $8.9 billion, far more than the $4 billion to $8 billion the agency had predicted. The failure caused the FDIC's reserve ratio to fall to 1.01%, down from 1.19% and below the legal requirement of 1.15%. The FDIC guarantees deposits at banks up to $100,000.

In related news, the FDIC's Bair told The Wall Street Journal that the agency may soon have to turn to the Treasury Department to borrow money.

"I would not rule out the possibility that at some point we may need to tap into (short-term) lines of credit with the Treasury for working capital, not to cover our losses but just for short-term liquidity purposes," Bair said in an interview with the newspaper. Bair said such a scenario is unlikely in the "near term."

The last time the FDIC had to tap the Treasury Department was after the savings-and-loan crisis in the early 1990s, the paper reported.

Chrysler to sell Viper?

U.S. automaker Chrysler is exploring strategic options for its Dodge Viper business, the company said this morning. "We have been approached by third parties who are interested in exploring future possibilities for Viper," Chief Executive Officer Bob Nardelli said in a statement.

The Viper is a high-end, 600-horsepower, hand-built sports car; Chrysler has sold 682 Vipers this year through July. A sale of Viper would help Chrysler focus on Dodge's other brands.

Chrysler, which is majority-owned by private-equity firm Cerberus Capital Management, said it had hired Lazard to help with the review.

Like Ford Motor (F, news, msgs) and General Motors (GM, news, msgs), Chrysler has been struggling to survive as consumers have turned away from more profitable but low-mileage SUVs and trucks to fuel-efficient hybrids and cars. This year’s spike in fuel costs has caused many drivers to reconsider their automobiles; gas prices hit an all-time high of $4.114 for a gallon of regular on July 17.

ConocoPhillips to sell gas stations

Another company looking to shed an unprofitable business is oil giant ConocoPhillips (COP, news, msgs).

The company will sell the rest of its company-owned gas stations for $800 million because of the low margins in the retail gasoline business, according to The Wall Street Journal.

The company's Conoco, 76 and Phillips 66 gas stations won't close, the paper added, but will be purchased by closely held PetroSun West, which plans to include other services and goods for drivers at the stations.

Shares of ConocoPhillips rose 1.3% to $83.47.

In June, ExxonMobil (XOM, news, msgs) announced plans to exit the gas station business.

J. Crew gives weak forecast; Borders posts loss

Back-to-school season may be upon us, but retailer J. Crew Group (JCG, news, msgs) is not enjoying the usual seasonal uptick. J. Crew reported second-quarter net income of $18.1 million, or 28 cents per share, a decline from the $20.6 million, or 32 cents per share, the company earned in the same period a year ago. Analysts had expected earnings of 33 cents per share.

Revenue rose 10% to $336.3 million but missed Wall Street's target for $337.7 million in sales.

Shares of the retailer fell 2.9% to $25.87 today after the company cautioned that full-year earnings would be between $1.44 and $1.54 per share, down from previous guidance of $1.70 and $1.75 per share. The consensus estimate for the year is $1.71.

The company attributed the "softness" in its stores to "the macroeconomic environment."

Meanwhile, Borders Group (BGP, news, msgs) late Tuesday said its second-quarter loss had narrowed to $11.3 million, or 19 cents per share, from last year's loss of $18.1 million, or 31 cents per share.

"Our focus on expense reduction, inventory management and improved gross margin is clearly working, and we have managed to show substantial improvement in a very difficult retail environment," Chief Executive Officer George Jones said in a press release.

But the loss was less than expected, and Borders shares jumped 19.2% to $6.39.

Mattel awarded millions over Bratz

Barbie took on Bratz and won.

A federal jury awarded toy maker Mattel (MAT, news, msgs) $100 million in damages stemming from an intellectual-property case.

The jury found that MGA Entertainment's Bratz dolls were at least in part based on drawings done by Barbie doll designer Carter Bryant while Bryant was employed by Mattel. Bryant developed the drawings as a Mattel staffer in 1999 and 2000. He left Mattel for MGA Entertainment in 2000. MGA introduced the Bratz dolls in 2001.

Mattel had asked for $2 billion in damages.

The judge in the case has not yet decided whether MGA can continue to market the Bratz dolls and, if so, what the royalties to Mattel would be.

Shares of Mattel were down 2.9% to $19.65.

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

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.640%	1.675%	-0.035	0.31%	-47.77%
5-year Treasury note yield	3.026%	3.048%	-0.022	-7.35%	-12.42%
10-year Treasury note yield	3.772%	3.784%	-0.012	-5.20%	-6.52%
30-year Treasury bond yield	4.383%	4.395%	-0.012	-4.78%	-1.70%
Currencies
U.S. Dollar Index	77.195	77.345	-0.150	5.14%	0.65%
British pound in dollars	$1.8362	$1.8389	-0.0027	-7.40%	-7.69%
Dollar in British pounds	£0.5446	£0.5438	0.0008	7.99%	8.34%
Euro in dollars	$1.4736	$1.4652	0.0084	-5.54%	0.83%
Dollar in euros	€ 0.6786	€ 0.6825	-0.0039	5.87%	-0.82%
Dollar in yen	109.50	109.64	-0.14	1.50%	-2.10%
Canadian dollar in U.S. dollars	$0.956	$0.954	$0.0019	-2.17%	-3.70%
U.S. dollar in Canadian dollars	$1.047	$1.048	-$0.0012	2.30%	3.86%
Commodities
Gold	$834.00	$828.10	$5.90	-9.61%	-0.48%
Copper	$3.4450	$3.4165	$0.03	-5.91%	13.29%
Silver	$13.5680	$13.6780	-$0.11	-23.73%	-9.06%
Corn	$5.7750	$5.7525	$0.02	-1.70%	26.78%
Crude oil (NYMEX) (per barrel)	$118.15	$116.27	$1.88	-4.78%	23.10%