Stocks rebound

Stocks rebound
News that the U.S. may take a stake in troubled banks, IBM surprise boost equities.
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See all CNNMoney.com RSS FEEDS (close) By Aaron Smith, CNNMoney.com staff writer
Last Updated: October 9, 2008: 9:42 AM ET

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NEW YORK (CNNMoney.com) -- Stocks jumped at the open Thursday, as investors welcomed IBM's earnings report and talk that the government could take a stake in troubled banks, in the latest attempt to stabilize financial markets.

A rally in European markets helped too.

The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all gained in the early going.

Markets have gotten hammered this week, with the Dow industrials shedding roughly 1,600 in the past week. And Wednesday wasn't much better. It was another disappointing session despite a half-point rate cut from the Federal Reserve. Stocks were volatile amid market turmoil in Europe and Asia. The Dow ended trading with a slump of 200 points, or 2%, while the Nasdaq dropped nearly 1%.

The Labor Department said initial claims for unemployment fell by 20,000 to 478,000 in the week ended Oct. 4. That's slightly worse than the 475,000 expected by economists surveyed by Briefing.com.

Much of what had been pushing markets higher was "the IBM effect and a technical bounce from new lows" in the stock market, said Peter Cardillo, economist for Avalon Partners, before the jobless report came out.

On Wednesday, IBM (IBM, Fortune 500) surprised investors by releasing its quarterly results earlier than expected.

Big Blue reported a 20% jump in third-quarter profit to $2.05 a share, handily topping analyst estimates by 4 cents a share. IBM also reaffirmed its full-year outlook. Shares of IBM rose 3% Thursday morning.

Cardillo also said the markets could also be getting relief from "a new government intervention by taking a stake in some of the banks."

To help bolster the markets, the Bush administration is considering taking ownership stakes in certain U.S. banks, as part of the $700 billion bailout package that was approved last week, according to the Associated Press.

Also, the New York Federal Reserve said late Wednesday that it is lending up to $37.8 billion to AIG, just three weeks after the Fed extended an $85 billion taxpayer-funded credit line to the troubled insurance giant. AIG (AIG, Fortune 500) recently disclosed that it had already taken out $61 billion of the debt.

Meanwhile, credit markets remain tight as lenders stay wary of taking on any unnecessary risk. Libor, the overnight bank lending rate, slipped to the still-high 5.09% from the previous rate of 5.38%, according to Bloomberg.com data. The 3-month Libor rate rose to 4.75% from 4.52%.

Economy: At 10 a.m. ET, the Census Bureau will report its August sales and inventory statistics for wholesale inventories. Economists surveyed by Briefing.com expect a gain of 0.4%, compared to a gain of 1.4% in July.

Markets, money and oil: The Nikkei closed down about 0.5%, but markets were higher in London, Frankfurt and Paris, rallying after a dismal Wednesday that was trailing the turmoil of the U.S. markets. The U.S. dollar slipped against the euro and the British pound but rose against the yen. The price of oil traded within a narrow range, dropping 32 cents a barrel to $88.63.

First Published: October 9, 2008: 7:02 AM ET

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