NEW YORK — Stocks jumped Wednesday as Wall Street interpreted a pullback in Treasurys and new talk of takeovers as signs that recent credit market tightness might be easing.
The 3-month Treasury bill — which earlier in the week drew massive buying as investors sought the safety of short-term government assets — fell Wednesday, driving its yield up to 3.80 percent from 3.59 percent late Tuesday.
"It gives the market a little comfort that it's not all about buying risk-free securities," said Scott Wren, equity strategist for A.G. Edwards & Sons. "There's less of a flight to quality. ... In my mind, the pullback in the stock market is entirely due to what's going on in the credit market. The fundamentals have been good. Valuations are reasonable. It's just the fear of the unknown in terms of the credit market."
Wall Street, which has been angling for the Federal Reserve to help ease the credit crunch by cutting the benchmark federal funds rate, has been knocked down several rungs in recent weeks by worries about lending troubles crimping economic and corporate growth.
Mergers and acquisitions, especially by private equity firms, had been one of the market's biggest drivers this year. Wednesday, investors were heartened by several reports about possible deals.
The Wall Street Journal reported that online brokerages TD Ameritrade Holding Corp. and E-Trade Financial Corp. have been discussing a possible deal, and that Dubai World, a holding company for the Persian Gulf city-state, is looking to acquire a 9.5 percent stake in MGM Mirage and a 50 percent ownership in the company's CityCenter development project. Meanwhile, Nymex Holdings Inc. Chairman Richard Schaeffer said Tuesday the commodities exchange owner has held preliminary discussions about a potential combination.
In midday trading, the Dow Jones industrial average shot up 116.57, or 0.89 percent, to 13,207.43.
Broader stock indicators also jumped. The Standard & Poor's 500 index rose 13.30, or 0.92 percent, to 1,460.42, while the Nasdaq composite index gained 25.58, or 1.01 percent, to 2,546.88.
As short-term government security prices fell, so did their longer-term counterparts. The yield on the benchmark 10-year Treasury note climbed to 4.64 percent from 4.59 percent late Tuesday.
Also calming investors, the Fed made a relatively small repurchase of $2 billion, in which it buys that amount in collateral from dealers, who then deposit the money into commercial banks.
Traders who bet on the Fed's next move were still pricing in an interest rate cut at its next meeting on Sept. 18. Some are banking on the central bank lowering rates before then.
Wall Street's sentiment could turn if it doesn't get that rate cut — which is a distinct possibility, Wren said.
"I don't want the stock market betting on, counting on, needing the Fed to cut rates in September," Wren said. "There's a lot of reasons why the Fed wouldn't cut rates. They've been talking about inflation for forever."
For now, though, investors appeared satisfied that the Fed's move Friday to lower the discount rate, or the rate it charges banks to borrow money, by a half-percentage-point is helping to keep the markets liquid.
The Russell 2000 index of smaller companies rose 8.36, or 1.06 percent, to 796.74.
Advancing issues outnumbered decliners by more than 4 to 1 on the New York Stock Exchange, where volume came to 598.7 million shares.
Nymex Holdings Inc. rose $7.92, or 6.7 percent, to $126.70. A Deutsche Bank analyst raised his price target on Nymex late Tuesday, saying even if the futures exchange is not bought, it can cut costs and raise prices.
TD Ameritrade rose 44 cents, or 2.7 percent, to $16.79, and E-Trade rose 21 cents to $15.78, on reports of a potential combination.
MGM Mirage rose $6.67, or 9 percent, to $80.99 after being cited as a target of Dubai World.
Though luxury homebuilder Toll Brothers Inc. reported that its third-quarter profit tumbled, hurt by hefty writedowns and higher-than-expected cancellations, the results were not as bad as Wall Street had anticipated.
Toll Brothers rose 98 cents, or 4.7 percent, to $22.07.
The dollar was mixed against other major currencies, while gold prices rose.
Crude oil prices fell 48 cents to $69.09 per barrel on the New York Mercantile Exchange.
No economic data are scheduled to be released Wednesday, but on Thursday, the Commerce Department releases its monthly measure of durable goods orders. On Friday, a report is due on new home sales and prices.
Overseas, Japan's Nikkei stock average fell less than 0.01 percent. Britain's FTSE 100 rose 1.81 percent, Germany's DAX index gained 1.02 percent, and France's CAC-40 rose 1.83 percent.
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