Dow up 165 as Bernanke cheers markets

Updated: 8:55 p.m. ET

Stocks enjoyed their biggest rally in nearly three weeks today, thanks to Federal Reserve Chairman Ben Bernanke's promise in a Wyoming speech to do whatever it takes to support the economic recovery.

Plus, a government report showed slower economic growth than originally thought in the second quarter. The decline, however, was less than expected. 

The rally was a big relief to many investors dismayed by the market's declines this month. But the relief may be short-lived because next week offers the potential for more bad economic news on the economy, especially the Sept. 3 jobs report.

The Dow Jones industrials ($INDU) were up 165 points, or 1.7%, to 10,151. The Standard & Poor's 500 Index ($INX) was up 17 points, or 1.7%, to 1,065, and the Nasdaq Composite Index ($COMPX) was up 35 points, or 1.7%, to 2,154.

The gains were the best for the indexes since Aug. 2, when the Dow jumped  208 points, but the rally won't be enough to save the week from being a loser. The Dow fell 0.6% on the week, with the S&P off 0.7% and the Nasdaq down 1.2%.

United-Continental merger cleared
Late today, the The Justice Department said that it had cleared the planned $3 billion merger between United Airlines and Continental. The move lifts the biggest regulatory hurdle to the creation of the world’s top airline.

UAL (UAUA), United's parent and Continental (CAL), which announced the merger in May, said they expect to complete it by Oct. 1 after a shareholder vote on Sept. 17.

If the deal is completed, a new company, called United Continental Holding, would operate United and Continental as separate airlines for a year until the Federal Aviation Administration issues a single operating certificate.

UAL was up 4.1% to $20.45 today; Continental rose 4.2% to $21.80.

Rally comes after Intel cuts guidance
Today's rally came despite Intel's (INTC) cutting its revenue guidance for the third quarter, saying low-end-computer sales are coming in weaker than expected. And Boeing (BA) said early today that the first 787 Dreamliner won't go into service until February. Engine problems are the issue.

Neither of the Dow components was much bothered by the news. Intel was up 1.2% to $18.40, and Boeing was among the top performers of the 30 Dow stocks, up 3.1% to $63.20.

Gold settled up 20 cents to $1,237.90. Crude oil was up $1.81, or 2.5%, to $75.17. It was crude's first close above $75 since Aug. 18.

The 10-year Treasury yield rose to 2.652% from 2.499% on Thursday as the market rally pulled money away from bonds.

Markets for the week
			8/27/2010			8/20/2010			% chg.			YTD chg.
Dow industrials			10,150.65			10,213.62			-0.6%			-2.7%
S&P 500			1,064.59			1,071.69			-0.7%			-4.5%
Nasdaq			2,153.63			2,179.76			-1.2%			-5.1%
Russell 2000			616.76			610.78			1.0%			-1.4%
Crude oil			$75.17			$73.82			1.8%			-5.3%
(per barrel)
U.S. Dollar Index			82.968			83.16			-0.2%			6.1%
10-yr. Treasury			2.65%			2.61%			1.5%			-31.0%
Gold			$1,237.90			$1,228.80			0.7%			12.9%
(per troy ounce)

A Bernanke rally
Today's was a Bernanke rally. Investors appeared to want constant reassurance that the Fed won't walk away from its mandate to support what even the Fed chairman conceded is a vulnerable economy.

Bernanke didn't disappoint investors in his Jackson Hole, Wyo., speech at an annual symposium hosted by the Federal Reserve Bank of Kansas City.

• Video: Bernanke says the Fed is ready to act

The Fed, he pledged, is prepared to keep credit flowing into the economy, even with "unconventional measures" if necessary. While dropping interest rates isn't an option now, the Fed can buy more Treasury securities, thus adding cash to the economy.

It can also be clearer on how long it will keep rates low. The Fed now uses the phrase "for an extended period." There's a big debate within the central bank on whether the continued use of the phrase might inflame inflationary pressures.

The Fed could also reduce the interest it pays on reserves that banks deposit at the 12 Federal Reserve banks.

These concepts have been bandied about for weeks. So Bernanke didn't say much that was new. But just saying it made investors happier than they've been all week.

On Thursday, worries about the Bernanke speech caused a late sell-off that dropped the Dow below 10,000 for the first time since July 6.

August has been weak, with the major averages flirting with 4% losses for the month. The market has risen in the previous four Augusts. 

Energy prices -- New York close
			Fri.			Thur.			Month chg.			YTD chg.
Crude oil			$75.17			$73.36			-4.79%			-5.28%
(per barrel)
Heating oil			$2.0575			$2.0236			-1.47%			-2.75%
(per gallon)
Natural gas			$3.7050			$3.8430			-24.74%			-33.51%
(per mil. BTU)
Unleaded gasoline			$1.9479			$1.9085			-8.22%			-5.11%
(per gallon)
Retail gasoline			$2.6820			$2.6880			-2.15%			1.63%
(per gallon; AAA)

Good and bad news in the GDP revision
The market received a bit of a boost when the Commerce Department revised its estimate of second-quarter economic growth to an anemic 1.6%. The decline was slightly less than many economists had predicted.

But the report was a sobering cap to a week of bad economic news that has raised fears that the nation could plunge into another recession.

The Commerce Department said its downward revision was based on more complete data and "primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment" by businesses.

Those drops were partially offset by an increase in residential and nonresidential investment, as well as increases in federal, state and local government spending.

There was one other bright spot, according to Capital Economics. Final sales to domestic purchases rose from 1.3% in the first quarter to 4.3% in the second. This measure strips out inventory changes and changes in exports and imports.

But the question is when those sales occurred. If they occurred at the start of the quarter -- the most likely scenario -- there may be more weakness going forward.

A broad rally, and the fight for 3Par goes on
The big question with a rally like today's is whether it can be sustained.

 

The odds are, however, that much of the gains today involve short-covering. Investors who had borrowed shares and sold them short may be locking in profits by buying back their shares to return to their brokers.

At the same time, investor pessimism has been growing in recent weeks.

• Video: Money Show's Howard Gold discusses investor fears

Nonetheless, if the gains for the major indexes hold, it would be their best days since Aug. 2, when the Dow jumped 208 points.

Of the 30 Dow stocks, 29 moved higher, led by DuPont (DD), Boeing and Caterpillar (CAT). The trio were all 3% higher. The sole loser was Hewlett-Packard (HPQ), down 0.6% to $38.

Meanwhile, 91 stocks in the Nasdaq-100 Index ($NDX.X) were higher. The index, which tracks the largest Nasdaq stocks, was up 23 points, or 1.3%, to 1,792.

HP slipped after it bid $30 a share for data-storage company 3Par less than 3 hours after Dell had bid $27 a share for the company.

Dell was up 1.2% to $11.89 as investors hoped it would give up the fight and not overpay for 3Par. 3Par was up 24.5% to $32.40, a clear sign investors see the bidding moving higher.

A big lawsuit
Late in the day, a company run by Microsoft (MSFT) co-founder Paul Allen sued 11 technology companies alleging they're violating patents developed at a Silicon Valley lab that Allen financed more than a decade ago.

(Microsoft is the publisher of MSN Money.)

Named in the suit are: Apple (AAPL), Google (GOOG), AOL (AOL), Facebook, Netflix (NFLX), Office Depot (ODP), OfficeMax (OMX), Staples (SPLS), Yahoo (YHOO) and Google's YouTube subsidiary. The suit doesn't name Microsoft, Amazon.com (AMZN) or other tech companies in Seattle where Allen is based.

The suit doesn't estimate a damage amount.

Short hits from the markets -- New York close
			Fri.			Thur.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.140%			0.145%			0.00%			180.00%
5-year Treasury note			1.496%			1.386%			-6.38%			-44.30%
10-year Treasury note			2.652%			2.499%			-8.77%			-30.99%
30-year Treasury bond			3.698%			3.531%			-7.02%			-20.32%
Currencies
U.S. Dollar Index			82.968			82.983			1.61%			6.07%
British pound			$1.5523			$1.5530			-1.07%			-4.04%
(in U.S. $)
U.S. $ in pounds			£0.6442			£0.6439			1.08%			4.21%
Euro in dollars			$1.2739			$1.2721			-2.42%			-11.12%
(in U.S. $)
U.S. $ in euros			€ 0.7850			€ 0.7861			2.48%			12.51%
U.S. $ in yen			85.47			84.45			-1.37%			-8.10%
Canada dollar			$0.950			$0.946			-2.24%			-0.06%
(in U.S. $)
U.S. dollar			$1.053			$1.057			2.37%			0.05%
(in Canadian $)
Commodities
Gold			$1,237.90			$1,237.70			4.76%			12.93%
(per troy ounce)
Copper			$3.3630			$3.3045			1.56%			0.49%
(per pound)
Silver			$19.0390			$18.9820			5.75%			13.02%
(per troy ounce)
Wheat			$6.6300			$6.6300			-4.36%			22.44%
(per bushel)
Corn			$4.1650			$4.1650			6.05%			0.48%
(per bushel)
Crude oil			$75.17			$73.36			-4.79%			-5.28%
(per barrel)