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By Jennifer Yousfi
A bullish remark from Standard & Poor's yesterday (Thursday) led to a recovery in the markets that resulted in the three major U.S. indices all posting gains for the day.
At the New York close, the blue-chip Dow Jones Industrial Average Index posted a gain of 35.50 points (0.29%), to trade at 12,145.74. The tech-laden Nasdaq Composite Index increased 19.74 points (0.88%), to reach 2,263.61. And the broader Standard & Poor's 500 Index rose 6.71 points (0.51%), to settle at 1,315.48.
"That slight piece of positive news from Standard & Poor's helped the market gather footing," Eric Green, who helps manage $5 billion at Penn Capital Management in Cherry Hill, New Jersey, told Bloomberg News. "The bears couldn't press it anymore."
The report from Standard & Poor's estimated that subprime related write-downs would reach no higher than $285 billion, only a slight increase over the firm's January estimate of $265 billion.
Credit analyst Scott Bugie said in the report that members of the financial sector "appear to have already disclosed the majority of valuation write-downs." Bugie also said that the "subprime saga" caused by "overlending during a credit boom" is probably half over with $150 billion in write-downs already disclosed,.
Earlier in the day, concerns that the Carlyle Group would not be able to rescue its mortgage-bond fund, Carlyle Capital Corp Ltd. (CCC), stoked new fears about the credit crisis and sent indices heading lower.
At noon ET, the Dow had posted a loss of 59.83 points (-0.49%), to trade at 12,050.41. The Nasdaq dropped 12.55 points (-0.56%), to reach 2,231.32. And the S&P 500 had lost 6.52 points (-0.50%), to settle at 1,302.25.
The CCC fund has been unable to meet $400 million in margin calls and has an estimated $16.6 billion in debt that is currently in default with all remaining debt to go into default "soon," according to a statement from the fund. Shares of the fund plunged over 85%.
"If Carlyle's lenders want their money right away, they'll liquidate the fund," Hank Calenti, a London-based analyst at RBC Capital Markets, told Bloomberg News. "That will put pressure on already stressed credit markets."
In overseas markets, Japan's Nikkei Index had a 427.69-point decline to close at 12,433.44. Hong Kong's blue-chip Hang Seng Index plunged almost 5% with a decrease of 1,121.12 points to close at 22,301.64.
"There are a couple of factors: there was no follow-through buying in the U.S. after the initial euphoria with the Fed move and the old concerns have returned – recession, subprime and all the rest," Andrew Clarke, a trader at Societe Generale, told Reuters, speaking of the decline in the blue-chip Hong Kong index. "There's also concern that China may tighten with inflation going through the roof."
Mainland inflation is at 12-year highs and the government may be forced to take additional tightening measures.
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