Stocks advance as banks, housing stocks gain

NEW YORK – Wall Street turned higher in choppy trading Monday as a surprisingly strong home sales report sent housing sector stocks higher and the implementation of the government's financial bailout plan gave regional bank shares a boost. The Dow Jones industrials rose nearly 130 points.

But the advance was nonetheless tentative as investors remain nervous about the prospects for a protracted global recession; many gains have been quickly given back in this still volatile market. Wall Street also tried to position itself ahead of possible interest rate moves from central banks.

Investors around the world are anxious that the evaporation in available credit in the past month has hurt lending to the point where it will be difficult for the country to avoid a recession. But the U.S. government is carrying out some of its measures this week to help the banking sector.

Investors also grew optimistic that the European Central Bank is moving toward an interest rate cut after President Jean-Claude Trichet said Monday such a step was "a possibility" as inflation pressures ease.

The comments come a day before the start of a regularly scheduled two-day meeting of the Federal Reserve. There is speculation the world's major central banks could announce coordinated rate cuts; the Fed is expected to lower its fed funds rate by a half-point to 1 percent on Wednesday.

Traders are juggling other expectations about the government's next moves. The Treasury said it signed agreements with nine banks and will buy stock in the companies this week. The proceeds from the stock sales are intended to bolster the banks' balance sheets so they will begin more normal lending and help ease the continuing credit crisis. But investors remain worried that stagnant credit has hurt the world economy.

Light, sweet crude fell 93 cents to $63.24 per barrel on the New York Mercantile Exchange, while gold prices rose slightly.

The gyrations in U.S. stocks have been sizable since the market's peak a year ago, but particularly since last month's bankruptcy of Lehman Brothers Holdings Inc. and the government rescue of insurer American International Group. With investors uncertain about the economy, the market appears to be bouncing along a rocky bottom after falling sharply earlier this month.

Investors were cheered Monday by news that sales of new homes showed an unexpected increase in September. While median home prices have dropped to the lowest level in four years, investors appeared pleased that the market was beginning to chip away at an inventory glut. The Commerce Department reported that sales of new single-family homes rose by 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from August.

The median price of a new home declined by 9.1 percent from a year ago to $218,400, its lowest level since September 2004.

Even with several pieces of welcome news, investors around the world remain worried about the prospects for economic expansion. A surge in the yen illustrated investors' nervousness about how much economic activity could slow. Japan's Nikkei 225 index dropped to its lowest close in 26 years as investors worried that the high yen will hurt Japanese exports and further disrupt economic activity. The yen is seen as a safe haven holding for investors who contend the Japanese economy will fare better in a global recession.

The ongoing selling is due in part to the belief that a worldwide recession is likely inevitable, but it's also being triggered by hedge funds and other investors unloading stock because they're being hit by margin calls. In a margin call, a broker who lent money to an investor calls in the loan, forcing the investor to sell stock to repay the loan.

The Nikkei fell 6.4 percent to its lowest level since October 1982, while Hong Kong's Hang Seng Index tumbled 12.7 percent, its lowest finish in more than four years and its biggest single-session drop since 1991.

The sell-off came even as the seven leading industrial nations on Sunday issued a statement warning about the "recent excessive volatility" in the value of the yen. The G7 said it would "cooperate as appropriate," stirring speculation of an orchestrated intervention to help stabilize currency markets.

Selling spread to Europe. Britain's FTSE 100 fell 0.79 percent, Germany's DAX index rose 0.91 percent, and France's CAC-40 declined 3.96 percent. Stocks in Europe pulled well off their lows after Wall Street sidestepped the steep sell-off that hit Asia and after Trichet raised the prospect of an interest rate cut.