(RTTNews) - Following a pullback in oil prices, stocks remain sharply higher in early afternoon trading on Friday. Speculation about an acquisition of Lehman Brothers (LEH) is also contributing to the buying interest.

Oil prices are falling $2.60 to $118.58 a barrel following a more than $5 a barrel increase in the previous session on the back of the Russian-Georgian military standoff. A rebound in the value of the U.S. dollar is contributing to the pullback by the price of oil.

Adding to the positive sentiment, Lehman Brothers is showing considerable strength following a report that state-run Korea Development Bank is considering an acquisition of the investment bank.

Korea Development Bank, or KDB, reportedly said it is open to mergers or acquisitions of both domestic and foreign companies to cover up its weak areas as the Korean government intends to privatize the company by 2012.

Nonetheless, weakness in Freddie Mac (FRE) and Fannie Mae (FNM) has tempered the strength in the financials somewhat after a major ratings agency downgraded the mortgage backers’ preferred stock.

In other news, CME Group (CME) finalized its purchase of Nymex Holdings (NMX). CME Group Class A common stock will continue to trade on the Nasdaq under the ticker symbol “CME.” Nymex Holdings common stock is being delisted and will no longer trade on the NYSE.

The companies also announced they will begin integrating Nymex’ business operations in order to achieve about $60 million in expected cost synergies.

On the economic front, Federal Reserve Chairman Ben Bernanke spoke at the Federal Reserve Bank of Kansas City’s Annual Economic Symposium in Jackson Hole, Wyoming earlier in the day, calling the current policy and economic environment “one of the most challenging” in recent memory.

“Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment.” Bernanke said.

In recent trading, the major averages have moved well off of their best levels of the day, although they remain firmly in positive territory. The Dow is currently up 132.64 at 11,562.85, the Nasdaq is up 16.94 at 2,397.32 and the S&P 500 is up 6.57 at 1,284.29.

Sector News

Airline stocks are turning in some of the best performances, boosted by the $3 a barrel decline in oil prices. The Amex Airline Index is currently down 4.8 percent, ending its four-day slide. On Thursday, the index set a nearly three-week closing low.

Brokerage stocks are also showing considerable strength, helped by a 11.3 percent gain by Lehman Brothers (LEH). The Amex Securities Broker/Dealer Index is up 2.4 percent, reversing the loss posted in the previous session.

Internet stocks are sharply higher as well, with the Amex Internet Index climbing 1.2 percent. Within the sector, Intuit (INTU) is seeing one of the best gains. After the markets closed on Thursday, the tax preparation software maker reported fourth quarter results that met analysts’ expectations and offered a full year forecast that beat the Street’s view. Intuit is currently up 4.1 percent.

Meanwhile, some bank stocks are showing strength, although Freddie Mac and Fannie Mae have tempered the buying interest. Earlier in the day, Moody’s Investors Service downgraded its ratings on the preferred stock of the mortgage backers. The S&P Bank Index is up 1.7 percent.

Other stocks that are posting notable gains include retail, software and telecommunications stocks. The S&P Retail Index is up 1.3 percent, the Amex Software Index is up 1.1 percent and the Amex Telecommunications Index is up 1 percent.

On the other hand, most resource stocks are seeing considerable weakness on declining commodity prices. Gold and steel stocks are seeing some of the biggest drops. The Amex Gold Bugs Index is down 1.6 percent, while the Amex Steel Index is lower by 1.3 percent.

The housing sector is lower as well, hurt by the weakness in Freddie Mac and Fannie Mae. The Philadelphia Housing Index is down 0.9 percent.

Stocks In The News

Among individual stocks, Alpharma (ALO) is soaring after King Pharmaceuticals (KG) announced it submitted a proposal to acquire Alpharma for $33.00 per share in cash. King Pharmaceuticals said it would turn hostile if Alpharma’s board refuses to accept the bid, which was declined earlier.

Shares of the maker of pain treatments are currently trading higher by 42.7 percent, breaking out of a recent trading range. Earlier in the day, the stock set a seven-year intraday high.

Gap (GPS) is also posting a substantial gain. After the markets closed on Thursday, the specialty retailer reported second quarter earnings that increased from last year, boosted by healthy margins and effective cost management. The company also reaffirmed its earnings outlook for the full year 2008. The stock is up 5.1 percent.

On the other hand, Pacific Sunwear (PSUN) is showing considerable weakness after the company reported disappointing second quarter earnings. The apparel retailer said it earned $0.04 per share, while analysts were looking for a profit of $0.06 per share. The stock is currently down 26.9 percent after setting a nine-year intraday low earlier in the session.

Other Markets

Stock market across the Asia-Pacific region closed mixed on Friday after Wall Street finished mixed overnight. The Hong Kong market remained closed on account of a typhoon warning. The Australian market rose, led by resource stock, while the Japanese market fell to its lowest level in nearly five months. The Japanese stock market closed down for the fourth straight trading session, with the benchmark Nikkei 225 Index ending the day down 0.7 percent.

Meanwhile, the major European markets moved to the upside on Friday. While the French CAC 40 Index rose 2.2 percent, the German DAX Index saw a gain of 1.7 percent. The U.K.’s FTSE 100 Index ended the day up 2.5 percent.

In the bond market, treasuries remain weak on the strength of the stock markets. Subsequently, the yield on the benchmark ten-year note is currently up 4.2 basis points at 3.88 percent.

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Posted in Categories: Australia, Economy, Eurozone, Japan, Releases, USA.

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