Stocks rallied on Thursday as a
surprisingly big upward revision to U.S. growth in the second
quarter and lower oil prices fanned optimism about the economy.
The government's report of second-quarter growth of 3.3
percent, fueled by exports and consumer spending, spurred
buying of industrial shares such as Caterpillar (CAT.N), often
described as an economic bellwether, and retailers.
The improved economic view, together with positive news in
the financial sector also sparked investors to scoop up
financial stocks like MBIA Inc (MBI.N).
"You hate to be underweight in stocks when you have an
economy that is performing better-than-expected," said James
Paulsen, chief investment officer at Wells Capital Management
The 3.3 percent growth rate in the second quarter topped
the government's initial estimate of growth of 1.9 percent.
The Dow Jones industrial average (.DJI) was up 187.19
points, or 1.63 percent, at 11,689.70. The Standard & Poor's
500 Index (.SPX) was up 13.78 points, or 1.08 percent, at
1,295.44. The Nasdaq Composite Index (.IXIC) was up 24.35
points, or 1.02 percent, at 2,406.81.
A late morning retreat in the price of oil sparked a fresh
round of buying, easing fears about constraints on spending,
and sent the major stock indexes to session highs.
U.S. crude futures, which initially had jumped above $120 a
barrel, turned negative after the International Energy Agency
pledged to help with additional supply if Tropical Storm Gustav
damages oil and natural gas facilities in the Gulf of Mexico.
Financial shares powered the day's rally amid optimism
about mortgage finance companies Fannie Mae (FNM.N) and Freddie
Mac (FRE.N) after Fannie reshuffled its top management in a
move to better implement a plan to preserve capital and cut
The management shake-up "shows that Fannie Mae is trying to
get the ship moved in the right direction," said Arthur Hogan,
chief market analyst at Jefferies & Co. in Boston.
On Thursday, Lehman Brothers said Fannie's capital and
reserves positions are better than market perceptions, adding
that it may not need more externally raised capital.
Fannie shares rose 7.4 percent to $6.99. Freddie shares
rose 10.1 percent to $5.25.
Also helping financial services companies, bond insurer
MBIA Inc said late on Wednesday that it plans to reinsure a
$184 billion portfolio of investment-grade U.S. public finance
MBIA was the day's biggest percentage winner among Big
Board stocks, with its shares jumping 25 percent to $15.01.
A gauge on financial shares (.GSPF) soared 3.12 percent.
Shares beyond the financial sector also participated in the
Upscale U.S. jeweler Tiffany & Co (TIF.N) shares rose 8.7
percent to $43.14 after it posted a higher-than-expected profit
and raised its full-year forecast on strong sales overseas.
Shares of heavy equipment maker Caterpillar (CAT.N) gained
2.6 percent at $71.38 on the improved economic backdrop and
remarks from its chief executive, Jim Owens, who said its
business in China could double by 2010.
The slide in oil, which had risen the past three sessions,
hurt energy shares. A index on energy companies (.GSPE) was
down 1.8 percent.
The government on Thursday also reported that the number of
U.S. workers filing new claims for jobless benefits fell to a
level that was a touch lower-than-expected.
(Additional reporting by Kristina Cooke; Editing by Leslie
Fannie Mae's (FNM.N) capital and reserves
positions are better than market expectations, and the biggest
U.S. mortgage finance company may not need any more externally
raised capital, according to an analyst at Lehman Brothers.
Lehman's Bruce Harting is the latest among Wall Street
analysts to say that the government sponsored-enterprises
(GSEs) have no immediate need for capital.
Shares of Fannie Mae and Freddie Mac (FRE.N) rose in
morning trade Thursday, prompted by easing concerns about
capital needs at the two mortgage finance GSEs, and Fannie's
announcement of management changes to preserve capital and cut
The stocks are at their highest levels since August 19, but
are down more than 80 percent year-to-date.
The shares had plummeted amid fears the two companies did
not have enough capital to sustain themselves as the U.S.
housing market worsens and that a bailout would result in their
common shares becoming worthless.
"While the recent price movement in the stocks impacts the
cost and ability of the GSEs to raise new capital, neither
company currently has a capital shortfall and both continue to
do new business," Harting said.
Even if neither Fannie nor Freddie raises another dollar of
capital over the next year, both companies would likely remain
above their statutory minimum requirements, he said. He has an
"overweight" rating on both the stocks.
On Wednesday, Merrill Lynch said it was premature to
consider a recapitalization sponsored by the U.S Treasury for
Fannie and Freddie, while earlier this week Citigroup had
estimated that the two companies had enough capital to absorb
probable losses through the end of the year.
Last month, the U.S. Treasury promised to re-finance Fannie
Mae and Freddie Mac, if either were facing collapse.
Lehman's Harting expects Fannie to get through the
difficult housing cycle with core capital remaining at or above
the 15 percent excess capital requirement.
"In the event that conditions worsen beyond our forecast,
the regulator could lower the excess requirement further, such
that the minimum requirement again becomes the binding
constraint," he said.
The analyst expects Fannie to have core capital of $42
billion by the fourth quarter plus another $14 billion of
He more than trebled his 2008 loss-per-share estimate on
Fannie to $10.24 a share, and said he expected provisions of
$10.8 billion at Fannie during the second half of the year --
with charge-offs of $5.4 billion -- building reserves to $14.4
"But if the company was absorbing losses through the income
statement as incurred, instead of front-end loading the excess
reserves, the capital would be closer to 170 percent of the
minimum capital requirement," Harting added.
The analyst cut his price target on the stock to $20 from
Fannie Mae passed another test of investor confidence on
Wednesday with the successful sale of $2 billion in short-term
Shares of Fannie rose 7 percent to $6.96, while those of
Freddie were up 9 percent at $5.19, in morning trade on the New
York Stock Exchange, .
(Reporting by Ramya Dilip in Bangalore; Editing by Amitha
Toyota Motor Corp cut its 2009 vehicle
sales forecast by nearly 7 percent as high fuel prices hammer
demand for large cars and pickup trucks, and said it will speed
up the rollout of hybrid and electric cars as their popularity
The weaker outlook from the world's most profitable
carmaker weighed on shares of European rivals and highlighted
an increasingly difficult environment, where orders in the
United States and Western Europe for high-margin, gas-thirsty
vehicles is slumping.
Toyota said on Thursday it expects to sell about 9.7
million vehicles next year including its Daihatsu Motor Co and
Hino Motors Ltd units. It had previously forecast sales of 10.4
million vehicles. No carmaker has yet passed the 10 million
annual unit sales milestone.
"We are looking at the current shift towards fuel-efficient
cars (in the United States) as a structural change in demand,"
Toyota President Katsuaki Watanabe told a news conference. "We
intend to respond quickly and flexibly to this environment."
As part of those efforts, Toyota said it would move forward
the launch of a "plug-in" version of its Prius
gasoline-electric hybrid car, which can recharged through an
electric socket. It will be available to fleet customers at the
end of next year, from earlier plans of 2010.
Toyota also said it would speed up the development of
vehicles that run only on electricity with the aim of
mass-producing them in the early part of next decade. Road
tests for the current prototype, called "e-com," had ended in
Rival Nissan Motor Co is aggressively promoting plans to
commercialize pure electric cars, though Toyota stressed that
such cars, including its own, would be suited only for
short-distance travel for the time being given the limitations
on battery storage technology and recharging infrastructure.
U.S. giant General Motors Corp, meanwhile, is looking to
beat Toyota to the punch with its all-electric Chevy Volt. GM
expects to have a showroom-ready version by this year,
according to people familiar with the project.
REVISION "CAN'T BE HELPED"
Toyota's forecast revision was expected after it trimmed
its 2008 sales projection last month, calling for growth of
just 1 percent to 9.5 million units.
For North America, the world's biggest auto market, Toyota
lowered its 2009 sales forecast to 2.7 million vehicles from 3
million. It dropped Mexico from its definition of North
Forecasts were lowered by 150,000 vehicles each for Europe,
Japan, and the rest of Asia.
"For the last few months the company began to say its
previous target was impossible and they've scaled back
gradually, so everybody's used to the idea," said Nagayuki
Yamagishi, strategist at Mitsubishi UFJ Securities.
"Everyone just thinks 'it can't be helped."'
Toyota shares ended flat after the news, mirroring the
Nikkei average, but European traders said the revision weighed
on Daimler and BMW shares, which fell 2.8 percent and 2
percent, respectively, in Germany.
A year ago, at its previous business strategy briefing,
Toyota had declared a successful entry into the full-sized
pickup truck segment in the United States with the Titan -- a
model it had billed its most important ever in the world's top
But rocketing fuel prices have scared consumers away,
forcing automakers to idle or cut back production of pickups
and sports utility vehicles (SUVs) in North America.
Toyota is suspending U.S. production of light trucks for
three months to prevent inventory from ballooning and outlined
plans last month to build the hot-selling Prius at a factory
under construction in Mississippi instead of the Highlander SUV
it had planned to make.
Toyota is launching a third-generation Prius and a new
hybrid model under the Lexus luxury marquee -- both due to
debut at the Detroit auto show in January. It is also
developing a low-cost car, expected to sell for under $9,000,
aimed at emerging markets such as India and Brazil.
Production of that car is set to begin in 2010 in India,
and in Brazil a year later -- lagging GM's plans, announced on
Thursday, to launch its new small car in India in the second
half of next year.
(Additional reporting by Elaine Lies; Editing by Lincoln
Feast & Ian Geoghegan)