Stocks get bailout boost

NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday, recovering from a mid-afternoon retreat, as investors welcomed reports that Congress and the White House have struck a deal to provide a $14 billion bailout to the struggling auto industry.
The Dow Jones industrial average (INDU) added 0.8%. The Standard & Poor's 500 (SPX) index gained 1.2% and the Nasdaq composite (COMP) also gained 1.2%.
Stocks rallied through the early afternoon in response to the auto bailout news, lost steam after the release of the November Treasury budget, and then recharged the advance near the close.
The Treasury budget widened to $164.4 billion last month from $98.2 billion in the previous month, versus forecasts for a $171 billion gap.
The budget deficit now totals $401.6 billion in just the first two months of the fiscal year, October and November. The budget deficit for all of fiscal year 2008 was $455 billion.
Stocks slipped Tuesday as investors pulled back after a big rally in the previous 2 1/2 weeks. Between hitting the most recent bear market lows on Nov. 20 and Monday's close, the S&P 500 rose 21%.
After that selloff, stocks managed some gains Wednesday, which partly reflected that an auto package is looking more likely, said Michael Sheldon, chief market strategist at RDM Financial Group.
While the advance was likely a bear market rally, there is also some genuine optimism that has been lifting stocks of late, he said.
Investors are getting hit by awful economic news and corporate profit forecasts. But they are also seeing the significant policy response by the Federal Reserve and government, as well as central banks and governments around the world.
"With an auto rescue package likely and a very large stimulus package likely early next year, some investors are starting to see the light at the end of the tunnel," Sheldon said.
Automakers: Congress and the White House have reached a deal on a $14 billion auto sector bailout that could bring a vote later Wednesday. The package would enable GM and Chrysler to avoid filing for bankruptcy through at least the end of March.
It is assumed that this would be sufficient time for the Obama administration and the new Congress to come up with a longer-term solution for the ailing automakers.
Ford Motor is also eligible for part of the loan, but the company says it has enough cash to avoid bankruptcy for now and just wants access to the money as a backstop.
However, investors took a sell-the-news approach and sent shares of GM (GM, Fortune 500) and Ford Motor (F, Fortune 500) lower.
Meanwhile, GMAC Financial Services, General Motors' finance unit, is struggling to raise enough capital to become a bank holding company, something it must do to access much-needed federal funds.
Experts worry that the failure of any one of the Big Three could trigger massive job losses and send the U.S. deeper into recession.
The U.S. has been in a recession since December 2007, according to a National Bureau of Economic Research report released last week. A majority of top-level executives think the recession will last at least another year, according to a survey by Duke University released Wednesday.
In economic news Wednesday, October wholesale inventories fell 1.1% versus forecasts for a decline of 0.2%. Inventories fell a revised 0.4% in the previous month.