By Peter McKay, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks edged higher for a second straight session Wednesday thanks to a rally in the financial sector led by American International Group and Citigroup, which conducted a successful offering of $2 billion in securities.
The deal heightened confidence that Wall Street is quickly putting the worst effects of the financial crisis behind it. In particular, investors have flocked over the past two sessions to some of the companies that still have heavy federal backing in hopes that the government will be able to unload its stake sooner than previously expected.
"We'll have to see what happens over the next three to six months, but it's definitely something people are looking forward to at this point," said portfolio manager Uri Landesman, of ING Investment Management in New York. "Anyone who took government money wants to be rid of them."
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The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,466, -1.22, -0.01%) rose 2.95 points to 10,567.33. The S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,102, +0.07, +0.01%) rose 0.5% to 1145.61, led by a 1.1% gain in its financial category. AIG /quotes/comstock/13*!aig/quotes/nls/aig (AIG 38.47, -0.50, -1.28%) leapt 10.6%, and Citigroup /quotes/comstock/13*!c/quotes/nls/c (C 4.10, -0.02, -0.49%) was up 3.7% after a well-bid offering of trust preferred securities.
Trust preferred securities possess characteristics of both equity and debt instruments, and are often sold by bank holding companies, falling in a capital basket, rather than being termed debt on a bank's balance sheet. Other advantages include early redemption by the issuer or a deferral of interest payments.
"The notable thing about this specific deal is that the preferred market has been somewhat closed as there's been a clear lack of liquidity," said William Larkin, fixed-income portfolio manager at Cabot Money Management in Salem, Mass.
Among the financial sector's other winners on Wednesday were Fannie Mae and Freddie Mac , which rose more than 2% each. Several regional bank stocks also rallied Wednesday, including Zions Bancorp /quotes/comstock/15*!zion/quotes/nls/zion (ZION 22.19, +0.14, +0.63%) , Regions Financial Corp. /quotes/comstock/13*!rf/quotes/nls/rf (RF 7.33, -0.06, -0.81%) and SunTrust Banks Inc. /quotes/comstock/13*!sti/quotes/nls/sti (STI 25.95, -0.01, -0.04%) , after a Wall Street Journal report said Barclays Capital /quotes/comstock/13*!bcs/quotes/nls/bcs (BCS 20.87, -0.02, -0.10%) /quotes/comstock/23s!a:barc (UK:BARC 332.80, -1.30, -0.39%) was hunting for a retail bank.
Technology stocks also were a market leader Wednesday, helped by a 2.9% gain in bellwether Google Inc. /quotes/comstock/15*!goog/quotes/nls/goog (GOOG 484.85, -0.14, -0.03%) after the search giant said it will soon conclude negotiations with the Chinese government regarding censorship and monitoring of its Chinese sites. Tech Stocks
Wednesday also marked the 10-year anniversary of the peak of the dotcom bubble -- an episode from which the Nasdaq still hasn't recovered. The index is down 55% from its March 2000 high. Read more coverage of the dot-com bubble and bust.
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Venture capitalists are having a tough time in today's environment, but many are still nurturing inventors and entrepreneurs. VentureSource, a unit of Wall Street Journal owner News Corp., picked 50 VCs with the greatest potential. Digits looks at the results, and who's not on the list, and why.
Volume outside the financial sector was light as some traders paused ahead of next week's full calendar, including key reports on housing and inflation, as well as the Federal Reserve's interest-rate meeting and decision. Composite trading in New York Stock Exchange-listed names recently hit 5.6 billion shares, with much of the activity concentrated in just a few big-name financials.
Among stocks to watch, Facet Biotech /quotes/comstock/15*!fact (FACT 27.01, 0.00, 0.00%) jumped 67% as Abbott Laboratories /quotes/comstock/13*!abt/quotes/nls/abt (ABT 49.08, +0.10, +0.20%) agreed to acquire the biotechnology company for $722 million. Facet shareholders will get $27 a share, two-thirds above the company's closing price Tuesday. Abbott rose 0.6%. See Biotech Stocks.
American Eagle Outfitters /quotes/comstock/13*!aeo/quotes/nls/aeo (AEO 12.31, -0.15, -1.20%) rose 6.1% after the apparel retailer said it would shutter its 28-store Martin + Osa chain to focus on its namesake brands.
In other markets, the dollar was weaker against the euro but strengthened against the yen.
The broad Dow Jones-UBS Commodity Index slipped 0.2%, hurt by an $11 drop in gold to $1,111 per ounce. Nymex crude for April delivery gained 60 cents a barrel to $82.09.
Treasury prices slipped, with the 10-year note off 6/32 to yield 3.723%.
Donna Kardos Yesalavich, Kristina Peterson, and Kellie Geressy-Nilsen contributed to this article.
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Todd Harrison
Minyan Market Musings