Wall Street rises as recession fears subside

US stocks made gains on Thursday following three successive sessions of losses as fresh data indicated the recession was closer to ending than expected.

Data on jobless claims, manufacturing in the Philadelphia region and leading economic indicators all helped spark a modest rally despite early concerns over the effect of new proposals on financial regulation.

Futures spent most of the pre-market session flat as investors waited to see how Tim Geithner, Treasury secretary, would be received when he addressed Congress on the new rules.

They then received a boost on the release of figures showing that the number of people continuing to claim jobless benefits unexpectedly fell two weeks ago for the first time since January 3.

The markets fell into negative territory soon after the market opened, though, as investors sold stock in General Electric, one of the companies likely to be classed as “systemically important” and so subject to much stricter oversight under the proposed legislation.

The oversight would affect even GE’s non-financial businesses, leading to speculation it might spin off its financial arm rather than face the burden of heavy regulation. The shares fell 1.5 per cent to $11.97.

But stocks in other sectors responded more positively to the plans, which analysts said could moderate the risk faced by many investors.

“Reducing the risk investors face is a way of keeping Wall Street as a major financial competitive advantage for the US,” said David Darst, chief investment strategist for Morgan Stanley Smith Barney.

Financial stocks performed especially well, with Bank of America gaining 4.9 per cent to $12.90 and JPMorgan picking up 4.4 per cent to $34.17.

The sector was also boosted by data showing that leading economic indicators are improving faster than expected and that the deceleration in Philadelphia’s manufacturing industry had slowed dramatically. This helped financial stocks lift markets out of negative territory during the morning. “The markets are particularly sensitive to economic reports right now as people decide whether to send them higher or lower,” said Randy Frederick, director of active trading at Charles Schwab.

The benchmark S&P 500 index closed 0.8 per cent up at 918.37 while the Dow Jones Industrial Average rose 0.7 per cent to 8,555.60. The Nasdaq Composite index slipped a fraction to 1,807.72, however.

The travel sector was under the microscope as investors reacted to results from cruise line operator Carnival and bearish words from two global airlines.

UAL, the parent company of United Airlines, said traffic in the second quarter was expected to fall as much as 10.5 per cent compared with a year ago. That knocked the shares 4 per cent down to $3.82.

The negativity surrounding the sector was reinforced by Willie Walsh, the chief executive of British Airways, who said the airline industry was yet to feel the worst of the downturn.

Other carriers also fell. AMR, the parent company of American Airlines, lost 4.4 per cent to $4.38 and Delta Air Lines dropped 3.2 per cent to $5.98.

Shares in Carnival rose after the company said that lower costs helped its profits beat Wall Street’s estimates.

The company has suffered a bruising early summer on fears that swine flu would stop people travelling, but managed to outstrip the market’s expectations, sending the shares up 7.5 per cent to $24.77.

Meanwhile, JM Smucker, which makes jam, showed rare growth in the consumer sector after reporting rising profits. Sales rose, helped by its purchase of the Folgers coffee business, and the shares climbed 9.7 per cent to $47.86.

In the financial sector, Discover Financial Services made a surprise profit for the quarter after a successful antitrust lawsuit against Visa and Mastercard helped cushion rising loan losses. The shares gained 4 per cent to $9.27.

Sallie Mae, the student loan provider, rose 5.5 per cent to $8.11 on news that it was one of the companies to which the Department of Education awarded a contract to service its $550m loan portfolio.