Dow Settles for Gain of 41.19

By PETER A. MCKAY
March 6, 2008; Page C1

Oil prices soared following a surprising drop in U.S. inventories, while stocks took another wild ride to finish with modest gains.

Up nearly 136 points at its high for the day and down 73.26 points at its low, the Dow Jones Industrial Average rose 41.19 points, or 0.3%, to 12254.99. It is down 7.6% this year.

Crude-oil futures rose 5% to a record $104.52 a barrel in New York, settling above an inflation-adjusted high of $103.76 set in 1980 for the first time. Early in the session, traders responded to news that the Organization of Petroleum Exporting Countries left its output targets unchanged. The rally gained momentum after government data showed a drop in U.S. inventories of crude oil and refined fuels, including the first drop in gasoline storage in more than four months.

With gains of more than 2% each in its energy and basic-materials sectors, the Standard & Poor's 500-stock index gained 0.5%, or 6.95 points, to 1333.70. The broad measure is down 9.2% in 2008. But the S&P's financial sector fell more than 1%, led by a 19% plunge in Ambac Financial Group, after the bond insurer unveiled a plan to offer at least $1 billion in stock to investors and said it will stop insuring mortgage-backed debt in an effort to keep its top-tier credit rating.

Besides failing to satisfy investors' hopes for a larger capital infusion, the offering of additional Ambac shares will dilute the value of existing holdings.

"People are looking around saying, how are they going to sell all this stock?" said Michael A. Church, portfolio manager at Church Capital Management in Yardley, Pa. "I don't think it's going to be easy to price. Good luck to the underwriters who, by the way, will probably be the same banks that have been burned" by bad credit bets recently.

MBIA, another major bond insurer, fell 6.2%.

Mortgage-related shares were hit hard. Fannie Mae tumbled 6.5% to $24.27 a share, its lowest close since September 1995, and is down 39% so far this year. Freddie Mac fell 4.1% and is down 36% in 2008.

The Nasdaq Composite Index rose 12.53 points, or 0.6%, to 2272.81. Year to date, it is off 14%.

The dollar fell to a new low against the euro, at $1.5265.

Crude's run-up in recent weeks has been part of a broader commodity surge driven by a combination of industrial demand overseas and the search by many investors for alternatives to the uncertain stock market.

The broad-based Dow Jones-AIG Commodity Index jumped 2.4%, or 5.177 points, to 219.036 as futures for heating oil, corn and gold all hit records. Gold jumped 2.3%, or $22.30 per troy ounce, to $986.20 in New York, though it is still far below its inflation-adjusted record of $2,239.67 from January 1980.

Silver rose 4.8%, its biggest percentage gain since July 2006, to $20.685 per troy ounce.

Write to Peter A. McKay at peter.mckay@wsj.com