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NEW YORK: US stocks on Wednesday extended gains from a powerful rally the prior day as oil prices fell again and Cisco's bright outlook outweighed dire earnings from mortgage finance giant Freddie Mac.
The Dow Jones Industrial Average climbed 40.30 points (0.35 percent) to close at 11,656.07 while the tech-heavy Nasdaq composite added a hefty 28.54 points (1.21 percent) at 2,378.37.
The broad-market Standard & Poor's 500 index rose 4.31 points (0.34 percent) to finish the session at 1,289.19.
After staging the strongest rally in four months on Tuesday, Wall Street trading began in the red amid profit-taking.
Bolstering the market's gains was the government's report that crude inventories had unexpectedly climbed in the United States, the world's largest oil consumer.
The news sent oil futures contracts lower. The benchmark New York contract fell 59 cents to close at 118.58 dollars a barrel, about 20 percent lower than its record-high of 147.27 on July 11.
The recent retreat in oil prices has US investors hoping for inflation relief that would help kick-start flagging consumer spending, the key driver of the economy.
"This was a reassuring day on Wall Street. Instead of succumbing to profit-taking, the major stock averages added to yesterday's big gains as a rising dollar and another dip in crude oil prices helped the market erase an early deficit," said Al Goldman, analyst at Wachovia Securities.
The major indexes extended their gains from a massive rally on Tuesday fuelled by declining crude oil prices and the Federal Reserve's decision to leave its key interest rate unchanged at 2.0 percent and its signal there would be no change in the near future.
Troubled mortgage finance giant Freddie Mac rekindled worries about the housing crisis after reporting a second-quarter net loss of 821 million dollars, more than triple most analysts' forecasts, and said it was slashing its dividend at least 80 percent.
Freddie Mac and Fannie Mae, both shareholder-owned, government-sponsored enterprises (GSEs), underpin some five trillion dollars in mortgages, about half the US market.
Shares in Freddie Mac plunged 19.15 percent to 6.5 dollars and Fannie Mae shed 15 percent at 11.56.
"Given the likelihood of a prolonged housing slump and the uncertainty of government support, investors should remain extremely cautious of lenders like Freddie Mac or Fannie Mae," said Jeffrey Ham, an analyst at Briefing.com.
Citigroup fell 1.10 percent to 19.70 dollars, Bank of America lost 0.39 percent at 33.45, JPMorgan Chase slid 1.19 percent to 41.39 and Merrill Lynch dropped 0.99 percent to 28.50.
Ambac, a bond insurer hard hit in the financial turmoil stemming from the US real estate crisis, posted a surprise profit in the second quarter. Its shares shot up 23.68 percent to 5.85.
The market got a lift from robust earnings and a bright outlook from tech heavyweight Cisco. Shares in the computer networking giant jumped 5.83 percent to 23.93.
Bond prices fell back. The yield on the 10-year US Treasury bond advanced to 4.048 percent from 4.007 percent on Tuesday, while that on the 30-year bond rose to 4.690 percent from 4.629 percent.
Bond yields and prices move in opposite directions. - AFP/de
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