US stocks rise as drop in oil offsets unease over Freddie Mac

Source: Agencies  |   2008-8-7  |     ONLINE EDITION

WALL Street logged another winning day yesterday as a drop in oil prices and a better-than-expected profit report from technology bellwether Cisco Systems Inc helped corral the market's worries about the financial sector.

Oil extended its slide into a third day. Light, sweet crude settled down 59 cents at US$118.58 a barrel on the New York Mercantile Exchange after the government reported a jump in domestic inventories; oil is now down about US$30 from its record high of US$147.27 reached on July 11.

Cisco rose more 5 percent after the networking equipment company late Tuesday posted earnings that narrowly topped Wall Street's forecast. The report helped buoy sentiment and lifted the technology-heavy Nasdaq composite index.

The buying came a day after Wall Street had a huge rally, an advance that in early trading yesterday looked like it might not hold. Investors began the day fearing more industrywide write-downs of bad home loans after mortgage financier Freddie Mac reported a larger-than-expected second-quarter loss. But a reversal in oil prices, continuing a decline that propelled stocks sharply higher Tuesday, helped calm investors about the forces tugging at the economy.

The well-being of Freddie Mac and sister company Fannie Mae is a big concern on Wall Street as the government-chartered companies hold or back nearly half of all US mortgage debt. The companies have lost billions of dollars due to failed loans over the past year; the federal government has pledged to help both companies with larger lines of credit or stock purchases if necessary.

Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, said that while the troubles in the financial sector aren't over, investors are somewhat emboldened by the fall in oil and signs of strength in the dollar.