Oil drops, stocks recover

[notiCIas]

Oil drops, stocks recover

Market manages modest gains after choppy morning as oil slumps, DC security threat is resolved.

May 11, 2005: 4:12 PM EDT


NEW YORK (CNN/Money) - Stocks managed gains Wednesday, recovering after a tough morning, as oil prices slumped and a brief security scare in Washington was resolved quickly.

The broad Standard & Poor's 500 (up 4.74 to 1,170.96, Charts) index and the Nasdaq composite (up 7.93 to 1,970.70, Charts) index both gained around 0.4 percent.

The Dow Jones industrial average (up 24.25 to 10,305.36, Charts) added 0.2 percent, limited by weakness in General Motors.

"It's a delayed reaction to the initial decline in oil prices," said Peter Cardillo, chief market analyst at S.W. Bach & Co.

Oil prices sank 3 percent after the government's weekly inventory report showed a solid increase. U.S. light crude for June delivery sank $1.62 to settle at $50.45 a barrel on the New York Mercantile Exchange.

The Dow had tumbled nearly 100 points earlier in the session after parts of the White House and Capitol were briefly evacuated when a small plane violated restricted airspace over Washington.

But stocks stabilized after the all-clear was sounded and later turned higher after authorities forced the Cessna plane to land in Maryland and the pilot was detained.

Here's a look at what was moving stocks near the close.
Trade gap narrows

Investors were also eyeing a surprise drop in the March trade gap, which failed to boost the market in early trading, but may have proven supportive as the day wore on.

Still, concerns about the pace of economic growth and rumors that weakness in GM had sent some hedge funds into a tailspin were acting as a drag on stocks Wednesday, said Stephen Leeb, president of Leeb Capital.

"There's still worry that a number of hedge funds are going to get hurt by GM, and that's caused a little flight to quality," he said, in reference to people worried about GM putting money into the Treasury market.

But selling pressure in the market overall was light, he said. "The volume has been low, you have oil unlikely to make any dramatic moves over the next few weeks, and I think we'll see gains over the next few weeks, once we get past this period."

General Motors (down $0.52 to $31.01, Research) lost another 1.8 percent.

The stock has been under pressure since Standard & Poor's cut the automaker's debt to "junk" last week, which could raise its borrowing costs and make it harder for the troubled automaker to compete globally. GM stock has been on a roller-coaster lately, rallying 15 percent the day before the downgrade on news that billionaire investor Kirk Kerkorian is upping his stake in the company.

Among other active issues, Walt Disney Co. (down $0.36 to $26.59, Research) rose initially but then sank after the media company reported higher profits on strong results in its movie studio.

Netflix (up $1.40 to $12.98, Research) jumped 8 percent after investor Carl Icahn got nominated to the board of Blockbuster Inc. (Research) Investors apparently belive Icahn will shun Blockbuster's online investments, reducing competition for Netflix.

Online music providers slipped after Yahoo! (up $0.80 to $34.86, Research) said late Tuesday that it has launched a new online music subscription service. The service competes with RealNetworks (down $1.54 to $5.76, Research)' Rhapsody and Napster (down $1.62 to $4.73, Research) by offering lower prices. Shares of both companies plunged in active Nasdaq trade.

Apple (down $0.78 to $35.64, Research), owner of the popular iTunes service, slipped around 4 percent, although the company is hit less directly by Yahoo! as its service is not based on a subscription model.
On the move

Cisco Systems (up $0.36 to $18.57, Research) rose 1.8 percent after reporting fiscal third-quarter earnings and sales late Tuesday that rose from a year earlier and edged past analysts' estimates.

The company also forecast fiscal fourth-quarter sales in a range that set the midpoint above forecasts, and fiscal-year 2005 sales in a range that was in line with estimates.

Shares of DreamWorks Animation SKG (down $4.51 to $31.99, Research) slumped 14 percent in active New York Stock Exchange trade after reporting lower-than-expected earnings late Tuesday that fell from a year earlier, due in part to disappointing home video sales of "Shrek 2."

Delta Air Lines (down $0.22 to $2.75, Research) fell 7 percent, tumbling for the second session on new worries that it may have to file for bankruptcy. The air carrier warned Monday that it will post substantial losses in 2005, due to insufficient cash flow and the impact of high fuel prices and low airfares.

On the upside, United Parcel Service (up $2.32 to $73.95, Research) added 3 percent. The package delivery firm reiterated its previous fiscal full-year profit growth forecast, but also said total volume growth for the second quarter is tracking ahead of estimates.

Market breadth was mixed. On the New York Stock Exchange, advancers topped decliners nine to seven on volume of 1.2 billion shares. On the Nasdaq, losers beat winners eight to seven on volume of 1.5 billion shares.

The March trade gap narrowed to $55 billion, the government reported, versus expectations that it would grow to a record $62 billion. The trade gap stood at a downwardly revised $60.6 billion in February.

Treasury prices were little changed, leaving the 10-year note yield at about 4.20 percent. Bond prices and yields move in opposite directions.

In currency trading, the dollar rose versus the euro and the yen.

COMEX gold was even at $427.90 an ounce.