Stocks rally on optimism over financials

1/04/2008 - 16:30

By Jennifer Coogan

NEW YORK (Reuters) - Stocks rallied on Tuesday as strong demand for a share offering by Lehman Brothers Holdings Inc helped restore confidence in financial sector stocks.

Lehman, which has been dogged by rumors that it lacked adequate capital, on Tuesday it said it raised $4 billion in an convertible preferred stock offering to bolster its balance sheet. The strength of the demand for Lehman shares calmed fears the bank was facing the same predicament as Bear Stearns , which nearly collapsed two weeks ago.

Also helping the financials was Swiss investment bank UBS AG , which wrote down an additional $19 billion on U.S. real estate and related assets and also announced a huge hike in capital. U.S.-listed shares of UBS surged nearly 9 percent to $31.25 on speculation that the bank was wiping its slate clean.

"There's been such negative sentiment on the brokers. Everyone is searching for what is going to be the bottom. Each additional card that's played leads one step closer," said Mark Schlarbaum, a trader at Global Capital Management in Conshohocken, Pennsylvania. "Financials are cheap right now, and if investors can get comfortable that they are near or at a bottom, they can start putting money to work in the sector."

The Dow Jones industrial average <.DJI> was up 247.52 points, or 2.02 percent, at 12,510.41. The Standard & Poor's 500 Index <.SPX> was up 25.44 points, or 1.92 percent, at 1,348.14. The Nasdaq Composite Index <.IXIC> was up 46.82 points, or 2.05 percent, at 2,325.92.

Shares of Lehman jumped 10 percent to $41.70. Other major gainers were Citigroup , up 7.3 percent to $22.98 and Merrill Lynch , up 6.3 percent to $43.34.

The market got a further boost after the Institute for Supply Management said its manufacturing index for March was stronger than forecast. The gauge rose to 48.6 in March from 48.3 in February and was closer than expected to the 50 mark, above which signals expansion.

Semiconductors were also helping the market. The Philadelphia Stock Exchange semiconductor index <.SOXX> was up 2.7 percent. Among the best performing shares were SanDisk Corp's , up 6.9 percent to $24.14 on the Nasdaq.

(Editing by Kenneth Barry)

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