MarketView for July 8

After remaining moribund for much of the day, things seemed to turn around in the last couple of hours of the trading day and the momentum built sending the major equity indexes well into positive territory. Driving the sharp upward trend was another substantial decline in the price of crude oil in combination with some renewed confidence in the financial sector after Ben Bernanke, chairman of the Federal Reserve, said he may keep open a lifeline for banks.

Bernanke said in a speech that the Fed may extend emergency lending facilities for the large Wall Street banks past year-end, indicating that the Fed is determined to stop the housing-inspired credit crisis from wreaking further havoc on the economy.

Treasury Secretary Henry Paulson added to the day’s optimism when he stated that the Treasury Department was looking for ways to shore up mortgage financing. JPMorgan Chase's chief executive, Jamie Dimon, chimed in during a speech of his own on Tuesday with the theme that the future of the economy is bright, although in the short-term things may be a bit difficult.

Technology and retail companies bounced back after a sharp sell-off last week, helping the S&P 500 stave off another day of bear market numbers. Wal-Mart was the day’s largest gainer on the Dow Jones industrial average, while Apple rose ahead of Friday's new iPhone launch, helping the NASDAQ. Apple’s new iPhone sold out online in Britain ahead of Friday's launch.

The positive mood continued after the closing bell, with aluminum producer Alcoa posting stronger-than-expected results. Its shares rose more than 5 percent after the bell.

Fannie Mae and Freddie Mac rebounded from 15-year lows after the mortgage finance companies' main regulator said proposed accounting rules should not force them to raise more capital. The comments eased fears the companies' value would be diluted by a massive capital increase.

General Electric ended the day up $0.96, or 3.54 percent, to close at $28.06, and was the top gainer within the S&P 500, just days before the economic bellwether releases its second-quarter earnings.

A drop of more than 4 percent in U.S. crude prices resulted in energy companies become the top drag on the S&P 500 and the Dow. Exxon Mobil slid $1.01, or 1.16 percent, to end the day at $85.94, Chevron was down $1.03, or 1.06 percent, to close at $95.79 and Schlumberger fell $3.32, or 3.34 percent, to close at $96.19.

Economic data released on Tuesday showed consumers still hurting, however. Pending sales of previously owned homes plummeted 4.7 percent in May, and sales at chain stores, though improved last week, were weaker in June.

Price of Crude Oil Falls...Again

The price of crude oil fell more than $5 per barrel on Tuesday, pushing the price decline this week to about $10 per barrel, after weather forecasters indicate that an Atlantic hurricane would steer clear of offshore oil platforms and the dollar was stronger. Domestic sweet crude for August delivery settled down $5.33 at $136.04 per barrel after falling as low as $135.14 per barrel, the lowest since June 26. London Brent crude settled down $5.44 at $136.43 per barrel.

The losses resulted in oil trade as substantially below the $145.85 peak scaled during rising tensions between Iran and the West over Tehran's nuclear ambitions and worries a brewing storm could hit the Gulf of Mexico's offshore oil fields.

Hurricane Bertha became a "major" hurricane on Monday, but none of the computer models used to predict storm tracks indicated it would steer toward the Gulf of Mexico, home to about a quarter of U.S. oil production. The gain by the dollar triggered some technical selling in the commodities markets. The dollar rebounded after Federal Reserve Chairman Ben Bernanke said the central bank may keep an emergency lending facility open beyond the end of the year for big Wall Street firms.

However, keep in mind that this week’s oil statistics and a monthly report from the International Energy Agency will give another look at the demand-supply situation amid a slowing world economy. The weekly domestic oil inventory data, which will include gasoline demand during the long weekend for the July 4 Independence Day holiday, will be released on Wednesday.

Refining margins, or profit levels for oil refiners from producing products, have weakened recently as prices of fuels such as gasoline and gas oil have not kept up with the sharp rise in crude oil prices.

Fed Likely To Continue Lifeline

Federal Reserve Chairman Ben Bernanke said on Tuesday the central bank might keep open a lifeline to financial firms. Bernanke promised to consider retaining an emergency lending facility for Wall Street firms past year-end, showing the Fed is determined to stop the housing-inspired credit crisis from wreaking further havoc on the economy.

Investors have lived in constant fear of yet another eruption of credit turmoil, which started last year when it became clear that the bursting of the housing bubble was causing severe losses across financial markets. Treasury Secretary Henry Paulson said home foreclosures may hit 2.5 million this year, many of them the fault of borrowers taking out loans they could not afford. Jamie Dimon, JPMorgan Chase Chief Executive, said simply because some problems in the credit markets have been resolved does not mean market conditions will not get worse.

Pending sales of previously owned homes plummeted 4.7 percent in May, and sales at chain stores, though improved last week, were weaker in June. Compared with a year ago, pending sales, which are based on contracts signed in May, were down 14 percent. The decline in home sales was far more than expected and was just the latest reminder that the economy's current troubles originated in the housing market.

However, concerns about the health of the U.S. financial sector eased somewhat after the regulator of mortgage financiers Fannie Mae and Freddie Mac played down the impact of a proposed accounting change.

Markets have feared the two government-sponsored entities might face capital constraints. But their regulator, the Office of Federal Housing Enterprise Oversight, said the accounting change that may affect trillions of dollars of mortgage bonds issued by Fannie and Freddie should not dictate capital requirements at the companies.

Taken literally, the change could mean Fannie Mae and Freddie Mac would need a combined $75 billion in additional capital, according to Lehman Brothers.

In remarks to a mortgage lending forum sponsored by the Federal Deposit Insurance Corp, Bernanke said credit costs have been driven higher and the pace of U.S. economic growth also has been hurt by market turmoil.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said.

The Fed set up the so-called Primary Dealer Credit Facility, or PDCF, in March as part of its effort to facilitate the purchase of ailing investment bank Bear Stearns by JPMorgan Chase & Co. It said at the time the PDCF would continue for at least six months.

The lending program allows primary dealers -- the biggest firms that deal directly with the Fed -- to borrow directly from the Fed at the discount rate, currently 2.25 percent.

Anheuser-Busch sues InBev

Anheuser-Busch is suing InBev in an attempt to slow its suitor's efforts to replace the current board of directors, which rejected InBev's $46.3 billion takeover offer. In the lawsuit, Anheuser-Busch cited "an illegal plan and scheme by InBev, through a course of deceptive conduct, to acquire control of Anheuser-Busch at a bargain price."

The lawsuit accused InBev of making "false and misleading statements" regarding financing of its $65-per-share offer for Anheuser and InBev's plans for the combined company, which would be the world's largest brewer, making a quarter of the world's beer.

Anheuser said in the lawsuit that it was "materially misleading" for InBev to tout its financing as fully committed because any commitments it has received "are certainly rife with conditions," allowing the proposed lenders to walk away.

The suit also questions InBev's claim that it would make Anheuser's hometown of St. Louis the North American headquarters for the combined company, since InBev has a business in Cuba which cannot be managed from the United States.

The lawsuit seeks an injunction to stop InBev from furthering its consent solicitation to replace Anheuser's board until these issues are fixed.

Anheuser-Busch, the largest U.S. brewer, has spurned InBev's advances, arguing the proposed price undervalues the company, which owns 50 percent of Mexico's Grupo Modelo and 27 percent of China's Tsingtao Brewery.

InBev, which has repeatedly said it is committed to a "friendly" deal, raised the pressure on Anheuser on Monday by filing a preliminary proposal with U.S. regulators that would lead to Anheuser shareholders voting on the board's future.

InBev, maker of Stella Artois and Beck's, also proposed its own slate of directors which would likely be more supportive of a takeover.

Alcoa Beats Expectations