Reports fuel recovery hopes

By Charley Blaine and Elizabeth Strott

Stocks were rallying this afternoon after several economic reports boosted optimism about an economic recovery.

Worries about the economy had crept into the marketplace, but better-than-expected news on continuing jobless claims, manufacturing in the Philadelphia region and leading economic indicators helped push those jitters aside this morning.

At 1:45 p.m. ET the Dow Jones Industrial Average ($INDU) was up 75 points to 8,573. The Nasdaq Composite Index ($COMPX) had added 4 points to 1,812, and the Standard & Poor's 500 Index ($INX) had gained 9 points to 920.

Some hints at recovery

There was finally some good news this morning about the number of people filing for continuing unemployment benefits.

The Labor Department's weekly jobless report showed the first drop in continuing claims since January. Continuing claims for unemployment insurance were down 148,000 to 6.69 million for the week ending June 6, the biggest weekly decline since November 2001.

The Labor Department's weekly report on jobless claims showed some improvement this morning.

Initial jobless claims rose slightly to 608,000 for the week ending June 13, pretty much in line with the revised 605,000 claims the previous week and economists' estimates for 604,000 claims.

A report on leading economic indicators from the Conference Board showed a 1.2% gain in May, up from a revised 1.1% increase in April. The research organization said that seven out of 10 indicators improved in May.

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"The recession is losing steam," said Ken Goldstein, an economist with The Conference Board. "Confidence is building and financial market volatility is abating. Even the housing market appears to be stabilizing. "If these trends continue, expect a slow recovery beginning before the end of the year," Goldstein continued.

"The back-to-back increase is the first since 2006," Nomura Securities Chief Economist David Resler wrote in a note this morning, "and is a signal that the trend in historically leading indicators is consistent with our forecast for an end to the recession this year."

And the Philadelphia Fed Index, which measures manufacturing activity in the Philadelphia region, came in at a reading of negative 2.2 in June, the best reading since September and a huge jump from the reading of negative 22.6 in May. It was also much better than economists' expectations of negative 17. The index is now slightly below zero; positive numbers indicate expansion, and negative numbers indicate contraction.

Some economic worries remain

While today's data might be reason to hope that a recovery is coming, some experts are cautious about being too optimistic.

"There are continuing jitters about where the global economy sits at the moment, and things aren't as good as people hoped they would be," E. William Stone, the chief investment strategist at PNC Wealth Management, told Bloomberg News.

Another expert pointed to worries about President Barack Obama's plans for market regulation, which were announced Wednesday.

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"Markets, I think, will respond to the Federal Reserve being the matinee idol role in neon lights, but alarm bells are starting to ring that the implementation of over-zealous regulation could well blunt the recovery of the economy," David Buik, a strategist at BGC Capital Partners, wrote in a research note. "Maybe that is the price that has to be paid to return the banking sector to blooming health."

Treasury Secretary Tim Geithner is testifying about the president's plans before the Senate Banking Committee this morning. Geithner will be before the House Financial Services Committee this afternoon. Every financial crisis of the last generation has sparked some effort at reform, but past efforts have begun too late, after the will to act has subsided," Geithner said in prepared remarks to the Senate Banking Committee in Washington. "We cannot let that happen this time."

Geithner's efforts to sell the president's plan did not convince everyone.

"These policies conflict at times. I do not believe we can let the Fed play so many roles. The Federal Reserve was given a unique independent status so that monetary policy would be insulated from political influence," Sen. Richard Shelby, the senior Republican on the Senate Banking Committee.

Gasoline prices up again

Prices at the pump could also be a factor that will weigh on consumers, as prices have been rising every day for the past 50 days.

The average price of regular gasoline was $2.685 today, up from $2.679 Wednesday, according to AAA's Fuel Gauge Report. "Demand for gasoline will increase this summer, but we question the consumer's willingness and/or ability to accept the run-up in price at the pump," analyst Stephen Schork wrote in his daily newsletter, The Schork Report, this morning.

Prices started their climb on April 29, when they were $2.05 a gallon. The all-time high of $4.114 a gallon was set last July.

Crude oil rose 37 cents to $71.40 a barrel today.

RIM to post results after the close

Investors will be tuning in to Research In Motion's (RIMM, news, msgs) results after today's closing bell. The BlackBerry maker is expected to post earnings of 92 cents per share in the quarter that ended in May, up from 84 cents per share in the same period last year. Analysts also expect revenue to rise. The consensus estimate is for a 53% jump to $3.42 billion.

Shares of RIM were down 32 cents to $76.89 this afternoon.

On Wednesday, Research In Motion's Co-Chief Executive Officer Jim Balsillie said that the company has more than 1 million government clients. And the company said on Tuesday that it will introduce its BlackBerry Tour this summer.

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RIM faces competition from Apple (AAPL, news, msgs), which introduced a new version of its popular iPhone last week, and Palm (PALM, news, msgs), which debuted its new Pre earlier this month.

Worries grow about deficit, stimulus

President Barack Obama's approval rating is still pretty high, but Obama's numbers are starting to fall slightly, as Americans grow concerned about the government's massive deficit and its intervention into the economy, according to a Wall Street Journal/NBC News poll.

A majority of people polled, 58%, said Obama and Congress should work to keep the federal budget deficit under control, even if it takes longer for the economy to recover as a result. Nearly seven in 10 people said they had worries about federal interventions into the economy.

"The public is really moving from evaluating him as a charismatic and charming leader to his specific handling of the challenges facing the country," Peter D. Hart, a Democratic pollster who conducts the survey with Republican Bill McInturff, told the Journal. Obama and his allies "are going to have to navigate in pretty choppy waters" going forward, Hart said.

Obama's job approval ratings are now at 56%, down from 61% in April. The federal budget deficit is expected to hit $1.8 trillion this year.

Banks pay back TARP funds

The banks that got the green light to pay back their Troubled Asset Relief Program funds aren't wasting time returning money to the government.

Capital One Financial (COF, news, msgs) late Wednesday confirmed that it paid back the $3.75 billion it received last fall amid the financial market turmoil. JPMorgan Chase (JPM, news, msgs) repaid $25 billion, and Goldman Sachs (GS, news, msgs) and Morgan Stanley (MS, news, msgs) each paid back $10 billion.

BB&T (BBT, news, msgs) said it paid back $3.1 billion in loans it received from the government. The bank now has "a singular focus on the business of serving clients," Chief Executive Officer Kelly King said in a statement.

American Express (AXP, news, msgs) returned $3.4 billion, U.S. Bancorp (USB, news, msgs) paid back $6.6 billion, State Street (STT, news, msgs) refunded $2 billion, Bank of New York Mellon (BK, news, msgs) gave back $3 billion, and Northern Trust (NTRS, news, msgs) paid back $1.6 billion.

"Over the long term . . . this is a very promising sign that things are getting back to normal," Uri Landesman, of ING Investment Management, told The Wall Street Journal.

Combined, the 10 banks are repaying $68 billion in TARP funds less than nine months after the Treasury Department introduced the $700 billion fund.

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But the banks still have to deal with the warrants the government holds -- the banks want to buy them back. The warrants had given the Treasury the right to buy common stock in the banks for up to 10 years, in the hopes that they could benefit from a rebound in their stock prices.

Earlier this month, Treasury said that banks can buy back the warrants at "fair market value"; an announcement on how they will be priced is expected Friday.

Citigroup (C, news, msgs) and Bank of America (BAC, news, msgs), which each received $45 billion in government loans, have not yet received Treasury's clearance to pay their funds back.

On Wednesday, the president outlined a sweeping overhaul to the country's financial regulatory system. The changes drew support and much criticism.

"If these proposals are implemented, there is no question but that the operating cost of a bank will rise; the profitability of core banking products will fall; the secular growth rate of the industry will be lowered, and the return on investment in the industry will plummet," Rochedale Securities analyst Dick Bove wrote in a note to clients. "Economic growth in this country will be inhibited. Financing will be unusually hard to obtain. The risk is high that foreign governments will not emulate the approaches recommended by the United States. If they do not the dominance of America in the capital markets will end to be replaced by capital markets around the world."