(RTTNews) - Investors are buying up stocks in morning trading on Friday, as oil prices drop, easing inflation fears. Strength in Lehman Brothers (LEH) is also contributing to the buying interest following reports of a possible acquisition.

After moving sharply higher in the previous session, the price of oil is giving back some ground in early trading on Friday. Crude for October delivery is currently down $2.02at $119.16 a barrel after ending Thursday’s trading up $5.62 at $121.18 a barrel.

The pullback by the price of oil comes amid a notable rebound in the value of the U.S. dollar, which came under pressure on Thursday following the release of some mixed economic data. The U.S. dollar index is currently up 0.5 percent, partly offsetting yesterday’s 1 percent decline.

Strength in financials is adding to the buying interest in the broader markets as well following reports that state-run Korea Development Bank is considering an acquisition of Lehman Brothers Holdings. Shares of the investment bank are up 14.9 percent on the speculation.

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.

A Reuters report quoted a South Korean government official as saying that talks between KDB and Lehman had not developed to the point of discussing details. The official added that KDB probably decided to stop the talks internally, as the company had not provided further information to the government.

In other merger and acquisition news, King Pharmaceuticals (KG) announced that it has submitted a proposal to acquire Alpharma (ALO) for $33.00 per share in cash. The proposed price implies a total equity value of approximately $1.4 billion for 100 percent of the fully diluted share capital and an enterprise value of approximately $1.2 billion.

Brian Markison, CEO of King Pharma said, “The transaction would create a diversified specialty pharmaceutical company with greater commercialization capabilities, an expanded portfolio of pain management products and a strengthened pipeline which would include multiple platform technologies.”

In recent trading, the major averages have been hovering near their best levels of the day. The Dow is currently up 181.65 at 11,611.86, the Nasdaq is up 29.13 at 2,409.51 and the S&P 500 is up 14.30 at 1,292.02.

Sector News

Airline stocks are turning in some of the best performances, boosted by the sharp drop in oil prices. The Amex Airline Index is currently up 5.7 percent, ending its recent downtrend. The index has been trending lower for the past four sessions, setting a three-week closing low on Thursday.

Within the airline sector, Continental Airlines (CAL) and UAL Corp. (UAUA) are two of the biggest gainers. Continental Airlines is up 7.8 percent, compared to a 10.3 percent gain by UAL. Earlier in the day, the Federal Aviation Administration proposed an $18,000 penalty for UAL’s United Airlines for two maintenance violations that occurred before a jet skidded off of a runway in February.

Financial stocks are also seeing significant buying interest, boosted by the strength seen in Lehman Brothers. The Amex Securities Broker/Dealer Index is up 3.3 percent, while the S&P Bank Index is climbing 3 percent.

Other stocks that are posting notable gains include retail, real estate and networking stocks. The S&P Retail Index is up 2.2 percent, the Morgan Stanley REIT Index is up 1.7 percent and the Amex Networking Index is up 1.4 percent.

On the other hand, some resource stocks are showing weakness, hurt by declining commodity prices. Gold and oil service stocks are seeing some of the most notable declines. The Amex Gold Bugs Index is down 1.2 percent, while the Philadelphia Oil Service Index is down 0.7 percent.

Stocks Driven By Analysts Comments

Among individual stocks, Chico’s FAS (CHS) is seeing significant buying interest after being upgraded at Goldman Sachs. The analyst took the stock off of the firm’s sell list and gave it a Neutral rating due to valuation. The stock has fallen 75 percent in the past 12 months, closing below Goldman’s target price of $4.50 on Thursday.

Shares of the clothing retailer are currently trading higher by 5.8 percent, ending its recent downtrend. The stock has come under pressure throughout the past month, setting a multi-year closing low in the previous session.

Salesforce.com (CRM) is also posting a substantial gain. A JMP Securities analyst upgraded the stock to a Market Outperform rating following the sharp drop seen in the previous session. The stock plunged more than 18 percent on Thursday after the company reported disappointing quarterly results. The stock is up 4.2 percent.

On the other hand, Symmetry Medical (SMA) is sharply lower following a downgrade at Wachovia. The analyst downgraded the stock to an Underperform rating from a Market Perform rating. Shares of Symmetry are falling 4.6 percent, although they have moved well off of their intraday low.

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.

The minutes of the July 14-15 monetary policy committee meeting released by the Bank of Japan noted that the U.S. economic slowdown and heightened instability in equity markets have increased the downside risks to Japan’s economy.

The central bank added that due attention should be paid to the degree of deceleration in overseas growth. A number of members expressed concerns about the risks of the nation’s loose monetary policy and said that those risks should be monitored closely. At that meeting, the Bank of Japan left the benchmark interest rate unchanged at 0.5 percent for the 20th straight month.

Meanwhile, the major European markets are moving to the upside on Friday. While the French CAC 40 Index is rising 2.3 percent, the German DAX Index is advancing 1.6 percent. Meanwhile, the U.K.’s FTSE 100 Index is climbing 2 percent.

On the economic front, the second quarter GDP estimate released by the U.K. Office of National Statistics showed that the U.K. economy remained standstill in the quarter, a downward revision from the preliminary estimate of 0.2 percent growth. On a year-over-year basis, the economy expanded 1.4 percent.

In the bond market, treasuries continue to show weakness as investors move out of the safety of government backed bonds and into the stock markets. Subsequently, the yield in the benchmark ten-year note is currently up 2.7 basis points at 3.865 percent.

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

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