US stocks end higher as crude drops

Wall Street shook off early doldrums and closed sharply higher today after another drop in oil prices encouraged investors to set aside financial sector worries and go bargain hunting across the market.

Stocks initially fell on uneasiness about the continuing impact of the housing market downturn and the credit crisis on financial company earnings. Disappointing results from American Express and Wachovia fed those worries.

But a USD4 drop in oil – which took crude’s decline in recent weeks to nearly USD20 a barrel – persuaded some investors to wade back into equities.

Even Wachovia, the nation’s fourth-largest bank, shot 8% higher after its stock tumbled to levels not seen since the early-1990s. The stock was pummelled after the retail bank posted an USD8.9 billion loss because of charges and reserves for bad mortgage loans.

The focus on higher oil’s impact on the economy has been so intense that any notch lower breeds optimism that the commodities bubble might perhaps be nearing an end, analysts said. That means, for the moment, corporate earnings reports have lost some of their dominance of the market.

The market was looking at the long-term impact of somewhat cheaper energy – and likely betting that company earnings would pick up if oil extends its decline.

According to preliminary calculations, the Dow Jones industrial average rose 135.16, or 1.18%, to 11,602.50. The blue chip index rose 400 points last week, but ended Monday’s session slightly lower.

Broader indexes also rose. The Standard & Poor’s 500 index jumped 17.00, or 1.35%, to 1,277.00. The technology-dominated Nasdaq composite index, which was down for much of the session on tech earnings disappointments, ended up 24.43, or 1.07%, at 2,303.96.

The price of oil began the session mildly lower on expectations that Tropical Storm Dolly wouldn’t disrupt oil operations in the Gulf of Mexico. The advance increased after comments from a Federal Reserve official sent the dollar higher against major currencies, a trend that in turn sends commodities lower.

A barrel of light sweet crude tumbled USD3.09 to settle at USD127.95 on the New York Mercantile Exchange, down nearly USD20 from its record high of USD147.27, reached just weeks ago.