NEW YORK (AP) — Stocks jumped Wednesday as investors interpreted selling in the Treasury market and an increase in borrowing by banks as signs that the Federal Reserve's efforts to loosen up the credit market might be working.
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, an indication that stocks are no longer seen as risky as they were just a few days ago. The selling boosted its yield to 3.66 percent, up from 3.59 percent late Tuesday and Monday's low of 2.51 percent.
"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 Fed 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.
But giving some investors reason to believe the steps the Fed has already taken may be enough, the nation's four biggest banks — Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Wachovia Corp. — said they each borrowed $500 million from the Federal Reserve's discount window. Last Friday, the Fed lowered its discount rate, or the rate it charges commercial banks, by a half-percentage point.
Investors were also heartened by reports of business deals. Casino operator MGM Mirage Inc. said it was selling half of its Las Vegas Strip project, CityCenter, to Dubai World, a holding company for the Persian Gulf city-state, for a $5.1 billion investment. Meanwhile, Nymex Holdings Inc. Chairman Richard Schaeffer said the commodities exchange has been meeting with suitors about a potential combination. Mergers and acquisitions, especially by private equity firms, had been one of the market's biggest drivers this year.
In late afternoon trading, the Dow Jones industrial average rose 92.02, or 0.70 percent, to 13,182.88.
Broader stock indicators also jumped. The Standard & Poor's 500 index rose 9.90, or 0.68 percent, to 1,457.02, while the Nasdaq composite index gained 22.96, or 0.91 percent, to 2,544.26.
As short-term government security prices fell, so did their longer-term counterparts. The 10-year Treasury note's yield climbed to 4.62 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.
The fed funds rate, the rate banks charge each other for loans, fell to 4.88 percent after opening at 5.125 percent. But 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 speculate the central bank will lower 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 is helping to keep the markets liquid.
It's a positive sign that banks are using the discount window as the Fed encouraged them to, said Michelle Girard, senior economist at fixed income firm RBS Greenwich Capital. On the other hand, she said, the four institutions that said they did so aren't ones that have had difficulty tapping funds elsewhere.
"I still think everybody's in a watchful, waiting mode," Girard said. "Certainly, things today looked more stable ... but it's way to soon to breathe a big sigh of relief and say the turmoil has past."
The Russell 2000 index of smaller companies rose 8.36, or 1.06 percent, to 796.74.
Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where volume came to 1.10 billion shares.
Nymex Holdings Inc. rose $7.42, or 6.3 percent, to $126.20. 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.
MGM Mirage rose $6.43, or 8.6 percent, to $80.75 on its deal with Dubai World.
The housing sector still appears far from recovery, even in the high-end market. Luxury homebuilder Toll Brothers Inc. reported that its third-quarter profit tumbled, hurt by hefty writedowns and higher-than-expected cancellations. But the results were not as bad as Wall Street had anticipated, and Toll Brothers rose $1.07, or 5 percent, to $22.16.
The dollar was mixed against other major currencies. Gold rose.
Crude oil prices fell 29 cents to $69.28 a barrel on the New York Mercantile Exchange.
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 added 1.83 percent.