CLOSING MARKET REPORT
Wall Street climbs on AIG rescue hopes

* Fed mulling loan package for AIG -Bloomberg report
* Fed keeps interest rates unchanged
* Dow up 1.3%, S&P up 1.8%, Nasdaq up 1.3%

NEW YORK - US stocks clawed back from their biggest drop in seven years on Tuesday on growing optimism that US authorities may finance a rescue of insurer American International Group (AIG).

A report late in the session that the Federal Reserve was considering a loan to AIG pulled the market out of a funk. The market had been lower after the US central bank disappointed investors by opting not to cut interest rates as many expected.

Financial shares, rebounding from their worst day ever on Monday, led the market higher after the Bloomberg report on possible Fed involvement in resolving the crisis surrounding AIG. The insurer's credit ratings were downgraded late on Monday, adding to concern about its ability to raise capital to help weather fast-mounting credit losses.

Adding to optimism, a source told Reuters that Barclays will buy the US broker-dealer business of Lehman Brothers Holdings, which filed for bankruptcy on Monday and helped trigger a global rout in equity markets.

The Federal Reserve held its key benchmark US interest rate steady on Tuesday, opting for the time being to soothe rattled financial markets with central bank lending facilities rather than rate cuts.

The Dow Jones industrial average rose 141.51 points, or 1.30 per cent, to 11,059.02, while the Standard & Poor's 500 Index gained 20.91 points, or 1.75 per cent, to 1,213.60. The Nasdaq Composite Index was up 27.99 points, or 1.28 per cent, at 2,207.90.

Financials continued to rally after the closing bell.

Morgan Stanley shares rose more than 7 per cent after reporting stronger-than-expected quarterly results.

AIG shares, under heavy pressure for days, hit a low of US$1.25 early in the session, but then pared the worst of its losses. It ended down 21.2 per cent at US$3.75.

At one time, AIG was the world's largest insurer based on market value.

Source: Singapore Business Times - 17 Sep 2008