By Kristina Cooke
NEW YORK (Reuters) - Stocks rose on Wednesday as financial shares climbed on hopes lawmakers will approve the rescue plan for mortgage finance companies Fannie Mae (FNM) and Freddie Mac (FRE) and the price of oil fell.
Corporate earnings sent mixed signals, with Boeing Co (BA) reporting a bigger-than-expected drop in profit while AT&T (T) posted quarterly results that showed stronger-than-expected wireless growth.
Oil prices fell more than $3 after government data showed a big increase in U.S. inventories of gasoline. Technology and retail shares mostly rose as lower oil eased concerns about the outlook for business and consumer spending.
Financial shares rose after President George W. Bush dropped a threat to veto a housing rescue bill, clearing the way for measures meant to shore up the worst U.S. home market since the Great Depression. Removal of the presidential veto threat spurred investors to snap up shares of Fannie and Freddie, which would receive an emergency government lifeline under the bill. The House was expected to approve the rescue package later on Wednesday.
Analysts also noted that given the Securities and Exchange Commission's clampdown on certain types of short selling in financial companies, hedge funds were reversing a popular trade, accelerating financial stocks' gains and oil's decline.
"A lot of hedge funds, particularly those involved in short trading had the long-oil/short-financials trade for some time," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
"So once that trade started to reverse, it's provided particularly strong support even to banks that have had weak quarterly results."
The Dow Jones industrial average rose 15.79 points, or 0.14 percent, to 11,618.29, while the Standard & Poor's 500 Index gained 4.49 points, or 0.35 percent, to 1,281.49.
The Nasdaq Composite Index was up 10.24 points, or 0.44 percent, at 2,314.20.
U.S. crude oil for September delivery fell $3.94 to $124.48 a barrel.
The Dow briefly ticked lower in afternoon trading after the Federal Reserve said in its Beige Book that the pace of economic activity slowed somewhat through mid-July.
Financial shares rose, with the S&P financials sub-index up 2 percent. Shares of Freddie Mac jumped 10 percent to $10.65, while Fannie Mae climbed 15 percent to $15.37.
Home builders headed higher on optimism about the housing bill, pushing the Dow Jones home construction index up 2.7 percent. Shares of luxury home builder Toll Brothers (TOL) rose 2.7 percent to $20.90.
Shares of AT&T (T), the largest U.S. telecommunications company and a Dow component, jumped 4.9 percent to $33.39.
On Nasdaq, shares of Apple (AAPL) led the way higher, gaining 2.6 percent to $166.10 after AT&T, the exclusive U.S. network carrier for the iPhone, said the launch of the iPhone 3G was strong.
Dow component Boeing fell 3.7 percent to $66.68.
Shares of specialty insurer Philadelphia Consolidated Holding Corp (PHLY) shot up 63 percent to $58.10 on the Nasdaq after Tokio Marine Holdings Inc of Japan agreed to buy the company for about $4.7 billion.
(Additional reporting by Ellis Mnyandu; Editing by Kenneth Barry)
