8:42 am : US Stocks jump on falling oil, inflation forecast

NEW YORK (AP) - Wall Street capped a volatile week with sharp gains Fridayas oil prices tumbled and after Federal Reserve Chairman Ben Bernanke saidinflation pressures are likely to moderate. The Dow Jones industrial averagerose nearly 200 points. Speculation that Lehman Brothers Holdings Inc. could be sold helped buoy thefinancial sector and the overall market. Analysts warned this week that theinvestment bank could book large write-downs for bad debt. But reports Fridaythat Korea Development Bank is considering buying the company sent investorsrushing for the stock. Lehman rose 69 cents, or 5 percent, to $14.41 butfinished well off its highs of the session. Investors also appeared cheered by an inflation forecast from Bernanke whosaid at the Kansas City Fed's annual economic symposium that inflation pressuresshould moderate this year amid tepid economic growth. But he also added that theinflation forecast remains "highly uncertain." John Massey, senior portfolio manager at AIG SunAmerica Asset Management,said investors are encouraged by Bernanke's comments on interest rates and bythe possibility of a buyer for Lehman. "We're seeing the potential for maybe another white knight," he said,referring to prospects of a deal to acquire all or part of the investment bank. The health of the financial sector and rising inflation are two of themarket's greatest concerns. Although Bernanke refrained from making predictionsabout inflation, the market was mollified when light, sweet crude plunged $6.59to settle at $114.59 a barrel on the New York Mercantile Exchange, after surgingby more than $5 a barrel on Thursday. The Dow rose 197.85, or 1.73 percent, to 11,628.06, near its highs of thesession. Broader stock indicators also rose. The Standard & Poor's 500 index rose14.48, or 1.13 percent, to 1,292.20, and the Nasdaq composite index rose 34.33,or 1.44 percent, to 2,414.71. The run-up Friday left stocks with mostly modest losses for the week thatagain saw a series of triple-digit moves in the Dow. The Dow is down 0.27percent, the S&P 500 is off 0.46 percent and the technology-heavy Nasdaq is down1.54 percent. Bond prices pulled back as investors rushed from the safety of governmentdebt to stocks. The yield on the benchmark 10-year Treasury note, which movesopposite its price, rose to 3.87 percent from 3.83 percent late Wednesday. The dollar rose against other major currencies, while gold prices fell. Massey cautioned against making too much of the market's moves given thelight volume this week. With traders squeezing in late-summer vacations, WallStreet has shown erratic trading. The Dow industrials lost more than 300 pointsover Monday and Tuesday before ending moderately higher Wednesday and finishingmixed Thursday. "The light volumes are really sort of the reasons behind why you've got someoutsize moves. I think the issues over all for the economy and the market arefairly well understood," he said. "The market is of this mind-set that we'regoing to continue to be flattish to down." He doesn't expect the stock market to more accurately reflect investorsentiment until after Labor Day, when trading volumes should pick up. Untilthen, he'll be looking next week at readings on consumer confidence andunemployment to determine where the economy might be headed. Remarks Friday from Bernanke and investor Warren Buffett appeared to dimWall Street's hopes that mortgage financiers Fannie Mae and Freddie Mac might beable to get by without a government bailout. While such a move could help propup the government-chartered companies, which together hold or back nearly halfthe nation's mortgage debt, it could also wipe out shareholder equity. While Bernanke didn't mention them by name he said he said one of thecritical questions facing the country is how to strengthen the financial systemand guard against the "moral hazard" of companies making risky choices thinkingthat the government will ultimately offer a safety net. Buffett said on CNBC that Fannie and Freddie are too big to fail but thatshareholder equity in those companies can be lost. Fannie Mae rose 15 cents to $5, while Freddie Mac fell 35 cents, or 11percent, to $2.81. Linda Duessel, the equity market strategist at Federated Investors, said thefinancial sector is key to a broader recovery on in stocks, which are down morethan 10 percent this year. "We need to absolutely find a bottom in financials to really believe thatthe bear can be behind us," she said, referring to the pullback in stocks sincelast fall. While most sectors gained ground Friday, some materials companies pulledback as commodity prices fell. United States Steel Corp. fell $5.44, or 3.9percent, to $133.76, while miner Freeport-McMoRan Copper & Gold Inc. declined$3.06, or 3.3 percent, to $90.60. In corporate news, Gap Inc. rose 87 cents, or 4.6 percent, to $19.88 afterreporting late Thursday that profits in the most recent quarter rose 51 percentfrom a year earlier, thanks to tight inventory and cost control. King Pharmaceuticals Inc. said it is prepared to take its bid for AlpharmaInc. directly to shareholders after the company rejected King's $1.4 billionbuyout overture. King disclosed the $33 a share offer publicly for the firsttime Friday. Alpharma surged $10.47, or 44 percent, to $34.51, while King rose95 cents, or 8.5 percent, to $12.19. Advancing issues outnumbered decliners by about 3 to 1 on the New York StockExchange, where consolidated volume came to a light 3.62 billion shares comparedwith 3.94 billion shares traded Thursday. The Russell 2000 index of smaller companies rose 12.35, or 1.70 percent, to737.60. Overseas, Japan's Nikkei stock average fell 0.68 percent. Britain's FTSE 100rose 2.52 percent, Germany's DAX index rose 1.69 percent, and France's CAC-40advanced 2.23 percent. The Dow Jones industrial average ended the week down 31.84, 0.27 percent, at11,628.06. The Standard & Poor's 500 index finished down 6.00, or 0.46 percent,at 1,292.20. The Nasdaq composite index ended the week down 37.81, or 1.54percent, at 2,414.71. The Russell 2000 index finished the week down 15.77, or 2.09 percent, at737.60. The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted indexthat measures 5,000 U.S. based companies -- ended Friday at 13,185.26, down86.62 points, or 0.65 percent, for the week. A year ago, the index was at14,896.21. Copyright 2008 Associated Press. All rights reserved. This material may not be