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The Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent and said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs.

“These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the central bank said today in a statement. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”

The dollar jumped and Treasuries extended losses as the Fed took another step in a gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed has provided hundreds of billions of dollars in backstop credit to banks, bond dealers, commercial paper borrowers and troubled financial institutions such as American International Group Inc.

“This is an unwinding of another unusual and exigent circumstance,” said David Zervos, visiting adviser to the Fed Board in 2009 who is now a managing director at Jeffries & Co. in New York. “They tried to go out of their way to tell people this doesn’t change their policy outlook at all.”

The dollar rose 0.7 percent to $1.3514 per euro at 5:19 p.m. in New York from $1.3607 yesterday. It touched $1.3502, the strongest level since May. The yield on the 10-year Treasury note rose seven basis points to 3.8 percent.

Maturity Shortened

The discount rate increase is effective on Feb. 19. The Board also said that effective March 18 “the typical maximum maturity for primary credit loans will be shortened to overnight.”

The Fed Board said the outlook for policy remains “about as it was at the January meeting of the Federal Open Market Committee.” The central bank also cited last month’s statement, which said economic conditions are likely to warrant “exceptionally low” levels of the federal funds rate “for an extended period.”

It was the first increase in the discount rate in more than three years, and the move widens the rate’s spread over the top range for the benchmark federal funds rate to 0.5 percentage point.

Backup Source

“The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds,” the Fed Board said in a statement.

“The Federal Reserve will assess over time whether further increases in the spread are appropriate.”

Financial institutions’ reliance on Fed credit has waned as market liquidity improved. Discount window loans stood at $14.1 billion on Feb. 17, down from $65.1 billion about a year earlier.

Fed Chairman Ben S. Bernanke telegraphed the move in Feb. 10 testimony to Congress when he said investors should expect a “modest increase” in the rate “before long.” Using language similar to today’s statement, he said a move shouldn’t be interpreted as a change in policy.

The Fed’s lending programs and their May 2009 review of the capital needs of the 19 largest banks helped restore confidence and liquidity in interbank lending markets. The TED spread, the difference between what the Treasury and banks pay to borrow dollars for three months, has narrowed to 0.15 percentage point from as high as 4.64 percentage points in October 2008.

Emergency Facilities

The central bank closed four emergency lending facilities, including the Primary Dealer Credit Facility and Term Securities Lending Facility, on Feb. 1.

Primary dealer credit stood at $146.5 billion two weeks after the collapse of Lehman Brothers Holdings Inc. in September 2008. The facility had a zero balance when the Fed closed it in February.

The Federal Open Market Committee left the benchmark overnight lending rate in a range of zero to 0.25 percent at their meeting Jan. 27. Minutes from the meeting said officials “agreed it would soon be appropriate” to reduce the term of discount window loans to overnight and widen the spread over the federal funds rate.

The minutes also said that the discount window change didn’t signal an immediate change in the benchmark lending rate.

Normal Footing

Fed officials “generally agreed that such steps to return the Federal Reserve’s liquidity provision to a normal footing would be technical adjustments.”

Prior to the financial crisis, the Fed kept the primary credit discount rate 1 percentage point above the target for the federal funds rate.

The Fed increased the term on the loans to 90 days during market turmoil in March 2008, and reduced it 28 days on Jan. 14 this year.

Discount rate changes are requested by boards of directors at the 12 regional Fed banks. The Fed Board said it approved requests for the rate increase from all 12 regional Fed banks. Discount rate change requests are subject to final review and determination by the Board of Governors in Washington. Fed governors review discount rate requests about every two weeks.

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A $10 million project to build 40 town homes along a once-desolate stretch of Delmar Boulevard is headed toward foreclosure.

Consider the Delmar Place town home project a casualty of the housing slide that began in 2008, said Stephen Acree, chief executive of the Regional Housing and Community Development Alliance. The foreclosure, initiated by Truman Bank, is scheduled for next Thursday.

Acree’s organization and another nonprofit, West End Community Conference, had formed Delmar Place Land Development LLC to assist the project on what had been city-owned land in the 5300 and 5400 blocks of Delmar, just west of Union Boulevard.

Town & Country Homes Inc. began construction in late 2003, but built only 24 of the planned town homes before the project stalled in 2009. A company representative declined to discuss the project or the foreclosure.

Acree said Thursday that Truman, still owed about $180,000 on a loan guaranteed by Town & Country in 2006, will try to sell the foreclosed property, perhaps to another builder fast cash. Town & Country is going out of business, Acree said.

The foreclosure affects only the 20 Delmar Place lots that remain vacant. The 24 lots on which Town & Country built homes are unaffected. Acree had helped Town & Country structure the project’s financing.

"It was a hard one to make work because of the extra infrastructure cost involved and the unproven market for that kind of residential development on DeImar west of Union," he said.

Delmar Place was designed for two rows of town homes, one facing Delmar and the second behind the first. The project stalled after Town & Country built the row of homes closest to the street. Acree said if there is a "silver lining" to the project’s failure it’s the improvement to Delmar’s streetscape.

Previously on the site were derelict apartment buildings.

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Arizona stock performance looks pretty good for the past quarter and since the start of 2009, but looking back to the start of the recession in late 2007 paints a gloomier picture.

Thirteen of the state’s billion-dollar public companies saw stock prices move up during the fourth quarter and 15 posted gains for the year as the market rallied following a recession low for stock indexes in March.

But for the period from Dec. 31, 2007, to Dec. 18, 2009, only four of the 21 companies posted gains, according to a Phoenix Business Journal analysis.

P.F. Chang’s China Bistro (Nasdaq:PFCB) outdistanced the other winners with a 69 percent gain despite the recession’s impact on many retail and restaurant chains.

Also posting gains since December 2007 were: Meritage Homes Corp. (NYSE:MTH), 19 percent; PetsMart Inc. (Nasdaq:PETM), 17 percent; and Tucson’s UniSource Energy Corp. (NYSE:UNS), 6.6 percent.

The recession’s impact has been very industry-specific said Chip Fisher, managing director and head of the Arizona office for Green Holcomb & Fisher. The pet industry has done well, but many in the restaurant industry have had a tough time.

P.F. Chang’s is among winners in the restaurant sector remaining profitable through the third quarter, although seeing profits shrink. The Asian restaurant chain chain has tightened its belt and closed underperforming locations while continuing modest growth, including new sites in the Middle East. In August, the Scottsdale chain announced a deal with consumer products giant Unilever to brand a line of frozen entrees.

Analysts expect to see its earnings per share hit $1.74 for 2009 and rise to $1.90 in 2010, compared with $1.45 in 2008.

But Barry Ziskin, president of Z Seven Fund in Mesa, says those earnings are significantly higher than the more conservative number reported to the IRS. And with the number of closures offsetting growth, the stock price may be ahead of itself.

He also cautions that PetsMart is feeling pressure from online retailers such as Petmed Express as well as veterinarians.

While Meritage Home Corp. stock moved up 19 percent since the end of 2007, it remains a long way from its peak during the housing boom, when it neared $100 a share in summer 2005 payday loans for bad credit.

The Scottsdale homebuilder continues to feel the sting of the industry implosion, with January-September revenue down from $1.1 billion in 2008 to $683 million this year. Net loss for the nine-month period, however, has tightened to $3.52 per share from $7.37 in 2008. Analysts see that number moving down to just 16 cents for all of 2010.

Leading the list on the negative side for the two-year period as well as for the past quarter and all of 2009 was Mesa Air Group Inc. (Nasdaq:MESA). The Phoenix-based short-hop airline’s stock ended 2007 at $3.09 per share but slipped to the penny-stock range a few months later and has not recovered, trading at just 11 cents as of Dec. 18. In 2006, shares had traded at more than $10.

Mesa has faced not only the recession’s tepid travel, but also a prolonged legal push from Delta Air Lines to sever ties and paid $52.5 million in 2008 to settle a dispute with Hawaiian Airlines.

Fisher said 2009 was a difficult year for most public companies, especially those with a limited stockholder base and analyst coverage.

The new year should bring more money into stock markets and improve values for small-cap as well as larger companies, he said, but not to 2007 levels.

“It’s going to be a long time until we return to those values,” said Fisher. A lot of small companies shouldn’t even be public, he said, adding his company has helped a number of those go private or delist from stock markets over the past year.

Green Holcomb has added staff in Phoenix, he said. “We expect the mergers and acquisitions market to be very active in 2010 and beyond.”

The two-year period saw the Dow Jones Industrial Average plummet from 13,265 to a March 2009 pit of 6,440 before starting a comeback to hit 10,329 Dec. 18. The Nasdaq Composite remains down nearly 17 percent for the two-year period closing at 2,212 Dec. 18.

As for the market in general, opinions vary from the nine-month rally topping off to a continued rise before a crash later in the year and worries about the impact of a major event somewhere in the world.

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DUBAI–The "Dubai vision," which has suffered a crushing blow from the freewheeling Gulf emirate’s sudden debt crisis, is the creation of one man who failed to apply the rules of open governance.

The city state’s rapid growth revolved around the ruler Sheikh Mohammed bin Rashid Maktoum, who outlined his ideas in a book, My Vision, where he suggested other Arab countries could replicate Dubai’s success. Now the model – always controversial among Gulf Arabs since it involved building shining cities in the desert at breakneck speed through the import of foreign residents, finance and labour – is on the ropes.

Questions will surface over what went wrong.

This week Dubai said it wanted to delay payment on billions of dollars of its total $80 billion (U.S.) debt, sending global markets plummeting as investors feared defaults could hit the global economy just as it was recovering from the financial crisis.

"Where next for the ruling family in Dubai?" said British historian Christopher Davidson. "The massive loss of legitimacy that the ruler is now facing, the massive loss of legitimacy that his son and crown prince face after lying to the World Economic Forum last week – where do these guys go from here?"

Sheikh Mohammed, whose face and words grace posters all over town, told the forum this month that the worst had passed for Dubai, which was well-placed to pursue its development plans.

The news that investment vehicle Dubai World could not pay a $3.5 billion bond was released just before the Muslim Eid holiday and U.A.E. national day next Wednesday. Local media have almost entirely avoided comment on the debacle.

"Dubai could not be more transparent and open about the challenges it is facing due to the global economic downturn as it has been," the English-language Gulf News said. The Arabic daily al-Khaleej praised the U.A.E.’s investment climate.

There is uncertainty about what assets are owned personally by the ruling family, directly by the government or simply sponsored either by the ruler or the government.

Dubai was the envy of other Gulf states such as Saudi Arabia and Qatar, who sought to ape some of Dubai’s ideas, such as business free zones, financial centres, advanced infrastructure and welcoming Western capital and expertise.

Aside from its more eye-catching projects seen by many as white elephants, such as palm-shaped man-made islands and the world’s tallest tower, Dubai developed health services, universities, sports facilities and model urban communities.

Ayman Ali, a London-based Arabic press commentator, said the Dubai model, based on Hong Kong and Singapore, forgot it was dealing with a country and not a corporation in becoming a place where many in the Arab world dreamed of living. "In the beginning it was aimed at getting rid of bureaucracy and red tape. It worked fine but if you are building a country you shouldn’t go on running it like a company," he said.

Dubai ran to catch up with business transparency practices in Singapore and Hong Kong, and never even pretended to expand political participation beyond a small group around the ruler.

In an interview this year that epitomized the progressive image Dubai has tried to present, Sheikh Mohammed rejected the suggestion he was a "Superman" running a freewheeling emirate alone.

"The Superman phenomenon you are talking about does not exist in our organizations and institutions," he told the questioner – before going on to discuss how his poetry and horse-racing fit into his 24-hour-a-day schedule.

Despite its financial troubles, many still regard Dubai as a pioneer among its neighbours.

"There was a lack of transparency, yes, but Dubai did something whose model was full liberalism. They made mistakes and lacked a lot of things but they are in transition," said Dubai-based Ibrahim Khayat, a Lebanese strategic business analyst. "Singapore has corruption too."

Martin Hvidt, a Danish Middle East Studies professor who focuses on Gulf economies, said the concentration of power in the hands of Sheikh Mohammed and a few advisers meant Dubai could take quick action to rectify mistakes.

"It’s too early to write Dubai’s obituary," he said.

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Wholesale prices in the U.S. increased in October for just the second time in the past four months, indicating inflation will not be a concern for the Federal Reserve.

The 0.3 percent increase in prices paid to factories, farmers and other producers was smaller than forecast and followed a 0.6 percent drop in September, according to Labor Department data released today in Washington. Excluding food and fuel, so-called core prices unexpectedly dropped 0.6 percent, capping the smallest 12-month gain in five years.

Near-record excess capacity will probably prevent suppliers from passing on the recent rebound in commodity costs for months to come. The report underpins Fed expectations, reiterated yesterday by Chairman Ben S. Bernanke, that inflation will be “subdued,’ allowing policy makers to keep interest rates low for a long time.

“Core measures of inflation continue to be remarkably tranquil, if not trending downward,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report. “I think this gives the Fed all the leeway they require to stand on the sidelines.”

Economists forecast prices would rise 0.5 percent, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from no change to an increase of 1.3 percent.

Excluding Food, Fuel

The decrease in prices excluding food and energy last month was the biggest since July 2006. The core measure was forecast to rise 0.1 percent after a 0.1 percent drop a month earlier, according to the Bloomberg News survey.

Compared with a year earlier, companies paid 1.9 percent less for goods today’s report showed. Core costs were up 0.7 percent from a year earlier, the smallest 12-month gain since March 2004.

Prices overall were buoyed by 1.6 percent increases in both food and fuel as the cost of everything from gasoline to vegetables and fruit climbed.

Declining prices of light trucks and passenger cars, which reflected the switch to the 2010 model year, pushed core costs lower.

Producer prices are one of three monthly inflation gauges reported by the Labor Department installment payday loans. The cost of imported goods rose 0.7 percent in October and increased 0.4 percent excluding energy. The government is scheduled to release its consumer price report tomorrow.

‘Subdued’ Inflation

“Inflation seems likely to remain subdued for some time,” Bernanke said yesterday in a speech to the Economic Club of New York. He also said “significant economic challenges remain.”

One challenge is trying to absorb excess capacity. The share of plants in use reached 68.3 percent in June, the lowest level since records began in 1967, according to Fed data. Economists track operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

Fed policy makers this month reiterated plans to keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.

Some companies still see pressure to hold down costs. Wal- Mart Stores Inc. Chief Executive Officer Michael T. Durke said the company continues “to experience ongoing deflation across our businesses.”

Falling Prices

Huntsman Corp., a chemical maker, said Nov. 4 that third- quarter sales fell 23 percent to $2.11 billion as a 3 percent increase in volumes could not make up for a 25 percent drop in prices.

Nonetheless, a falling dollar and expanding global economies are forcing up commodity costs.

The U.S. last week raised its forecast for crude-oil prices this year and next on speculation that demand will rise as the global economy improves.

“Commodity prices are responding to the weak dollar by rising but core measures are responding to economic slack,” Woodley Park Research’s DeKaser said.

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GMAC Inc on Wednesday launched a new government-backed bond sale ahead of a regulatory deadline next month that will test the company’s capital levels and ability to absorb losses.

GMAC came to market with a $2.9 billion three-year government-guaranteed note issue expected to price as soon as Wednesday, according to IFR, a Thomson Reuters service.

The bond sale comes amid conversations the Detroit-based firm, the traditional lender to General Motors Co, is having with the U.S. Treasury about a possible third cash infusion to its GMAC Financial Services Inc unit.

GMAC, which is also taking over the auto loan business of Chrysler, converted to a bank holding company in December to become eligible for bailout money the U.S. Treasury was pumping into banks.

Bank holding companies, including GMAC, that regulators have viewed as being undercapitalized face a November 9 deadline for implementing plans to enhance their capital positions.

Concerns that GMAC could fail the impending test had sent the cost of insuring debt at its residential mortgage arm, Residential Capital, spiraling in the past week as investors worried that the unit would need to be spun off.

Credit default swaps insuring ResCap’s debt plunged 10 percentage points on Wednesday, to around 29 percent of the sum insured as an upfront cost, as these concerns ebbed.

That means it would cost $2.9 million to insure $10 million in debt for five years, plus annual payments of $500,000 payday advance lenders.

Concerns that GMAC will fail the November tests are likely overdone, said Ricardo Kleinbaum, trading sector specialist at BNP Paribas in New York.

“We would expect Rescap to be protected in any further capital injection given the importance of its mortgage servicing unit, though origination volumes are dropping,” he said.

GMAC is also scheduled to report its third-quarter earnings on November 4.

The cost of insuring GMAC’s debt with credit default swaps fell on Wednesday to around 630 basis points, or $630,000 million per year to insure $10 million for five years, from around 690 basis points on Tuesday, according to Markit Intraday.

GMAC’s new bonds are expected to yield 10 basis points less than midswaps, which are the mid-point between bids and offers on interest rate swaps.

The debt will be backed by the Federal Deposit Insurance Corp under its Temporary Liquidity Guarantee Program, set up to relieve a financing squeeze for U.S. banks during the credit crisis. The program is set to expire on October 31, though a limited six-month safety net may be extended if needed.

Thanks to the government guarantee, the notes will be rated AAA by all three major rating agencies. 

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Corporate, mortgage and other debt issuers may be facing permanently higher costs as large banks face new restrictions on their use of client assets.

Banks have relied on their ability to reuse hundreds of billions of dollars in client assets that are posted against repurchase agreements, securities lending agreements and derivatives to back new trades and loans, boosting liquidity in many markets.

After losing assets when Lehman Brothers collapsed last September, however, many investors are forbidding banks to reuse the assets, a process known as rehypothecation.

Banks and investors have also restricted the collateral they accept to only the most liquid, highest quality debt, after many markets, including corporate bonds, froze in the aftermath of Lehman’s failure.

As riskier debt is less acceptable for reuse, it will become more costly for banks to hold, which will hurt issuers.

“When securities are less available to freely circulate in the market, the liquidity of those securities goes down,” said Darrell Duffie, professor of finance at Stanford University.

“Its going to raise the cost of trading in corporate bonds and will lower the attractiveness of buying corporate bonds when they’re issued, and that means the corporation will have to pay a higher interest rate,” he said.

A recent report by the International Monetary Fund estimates that the pullback in high grade collateral due to a reduction in the use of pledged client collateral and a pullback in securities lending and hoarding by banks, has adversely impacted global liquidity by around $5 trillion allstate insurance company.

Large banks have reported significant declines in the number of securities they are able to reuse.

The amount of securities posted with Goldman Sachs against repos, securities lending agreements and derivatives that the bank was allowed to reuse fell to $596 billion in June 2009, from $891 billion in November 2007, according to the bank’s quarterly reports.

Morgan Stanley saw an even larger drop, receiving $331 billion in June 2009 that could be repledged, compared with $948 billion in November 2007.

Securities lending by the major custodians including BNY Mellon, State Street and JPMorgan has fallen by half relative to its peak of about $1.6 trillion before the crisis, the IMF found.

Cash hoarding by major banks is also sizable with many large banks having around $200 billion each in cash or cash-equivalents, it said.

PRIMARY MARKET RALLY

Corporate bond issuance has surged in the past few weeks as issuers take advantage of a market rally, and banks also continue to be propped up by cheap government funds. 

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U.S. producer prices rose more than twice as much as expected in August on the biggest surge in gasoline prices in more than 10 years and prices declined less than expected compared with a year ago, a government report showed on Tuesday.

The Labor Department said the seasonally adjusted index for prices paid at the farm and factory gate jumped 1 freecreditreport.7% last month and fell 4.3% from August 2008. Analysts expected producer prices to rise 0.8% on the month and to fall 5.3% on the year. 

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Morgan Stanley Chief Executive John Mack is stepping down and will be replaced by James Gorman, one of the investment bank’s co-presidents.

Mack, 64, will remain as chairman of Morgan Stanley (MS, Fortune 500), whose management has drawn criticism from some quarters lately after a string of recent losses.

Mack had told the bank’s board that he planned to step down from the CEO post when he turned 65 in November, the bank said in a statement Thursday.

Gorman, 51, who runs Morgan Stanley’s brokerage and has been overseeing its expansion through a joint venture with Citigroup’s Smith Barney (C, Fortune 500) unit, has long been seen as a front runner for the top job at Morgan Stanley.

"Gorman has really earned his stripes," said Anton Schutz, president of Mendon Capital Advisors in Rochester, New York, which owns Morgan Stanley shares. "He did a great job at Merrill, he’s doing a good job at Morgan Stanley, and the timing for a change seems to be good, because we’ve made it through the worst of the crisis."

Prior to joining Morgan Stanley in 2006, Gorman had held a series of positions at Merrill Lynch & Co (MSPX), including leading its global private client business from 2001 to 2005.

Walid Chammah, another Morgan Stanley co-president who had also for a time been a candidate for the top job, was named chairman of Morgan Stanley International. 

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Stocks rallied Tuesday after Home Depot’s results and forecast and a few bright spots in the day’s housing market report gave investors a reason to dip back into the market after a two-session retreat.

After the close, Hewlett-Packard (HPQ, Fortune 500) reported lower quarterly sales and earnings that topped analysts estimates.

The Dow Jones industrial average (INDU) added 82 points, or 0.9%. The S&P 500 (SPX) index rose 10 points, or 1%. The Nasdaq composite (COMP) gained 25 points, or 1.3%.

Stocks slipped for two straight sessions, with the major gauges each losing over 3% on worries that a struggling consumer could pressure an already fragile recovery.

But Tuesday brought some better news from the retail sector and investors used it as an opportunity to move back into the market, albeit on light trading volume.

"There’s going to be a lot of volatility day-to-day as we try to figure out how much economic growth we’re going to have," said Robert McGee, portfolio manager at CS McKee.

A weaker-than-expected consumer sentiment report Friday and Lowe’s disappointing profit report Monday sparked the selling, which followed a roughly five-month advance.

But Tuesday brought better profit news from Dow component Home Depot and discount retailer Target, helping to mitigate some consumer worries. On the downside, the morning’s housing market report missed growth forecasts but investors sought out some good news when it came to single-home construction.

The S&P 500 is 46% higher since bottoming March 9. Year-to-date, it’s just up 9.6% as of Tuesday’s close.

"I think the rally is a little ahead of what the economy and fundamentals are indicating," McGee said. "We’re probably near the highs of the year and could see some give back through the fall."

Wednesday brings no market-moving quarterly results or economic news. The weekly oil inventories report from the Energy Information Administration is due in the mid-morning.

Retail: Home Depot (HD, Fortune 500) reported earnings of 66 cents per share, versus 77 cents a year ago, as the recession cut into its business. But results were better than expected and the home improvement retailer boosted its full-year earnings outlook. Shares of the Dow component gained 3% Tuesday.

Target (TGT, Fortune 500) reported earnings of 79 cents per share versus 82 cents a year earlier, topping expectations, due to cost cutting and reduced inventories. But revenue and same-store sales slipped, as consumers remained cautious. Shares gained 7.6%.

Economy: Housing starts and building permits both slipped in July, according to a Commerce Department report released Tuesday. The report surprised Wall Street economists who were looking for an improvement free car insurance quotes.

Housing starts fell to a 581,000 annualized rate in July from a revised 587,000 in June. Economists thought starts would rise to 599,000, according to a Briefing.com survey.

Building permits, which indicate builder confidence, fell to a 560,000 annualized rate in July from a revised 570,000 annualized rate in June. Economists thought it would rise to a 576,000 annualized rate.

On the upside, the report showed that single-family housing construction rose 1.7% in July, advancing for the fifth straight month and at the fastest pace since October.

A separate report showed that inflation at the wholesale level remains in check. The Producer Price Index (PPI) fell 0.9% in July after rising 1.8% in June. Economists thought it would fall to 0.3%. The core PPI, which strips out volatile food and energy prices, fell 0.1% in July versus forecasts for a rise of 0.1%.

General Motors: The automaker is boosting production in the second half of the year and bringing 1,350 of its North American employees back to work as a result of increased demand from the government’s Cash for Clunkers program.

Separately, GM (GM, Fortune 500) said it made a deal to sell its money-losing Saab to Swedish luxury sports car maker Koenigsegg.

Other stock movers: Huron Consulting Group (HURN) rallied 37.6% in unusually active Nasdaq trading after the business consultant reported higher quarterly revenue and earnings that topped estimates.

American Axle & Manufacturing Holdings (AXL) rallied 117% in unusually active New York Stock Exchange trading after saying it will get up to $210 million in help from former parent GM. The auto parts manufacturer is trying to restructure its debt outside of bankruptcy court.

Market breadth was positive and trading volume was light. On the New York Stock Exchange, winners topped losers by almost four to one on volume of 991 million shares. On the Nasdaq, advancers topped decliners three to one on volume of 1.77 billion shares.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.51% from 3.47% Monday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, European and Asian markets climbed.

U.S. light crude oil for September delivery rose $2.44 to settle at $69.19 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery rose $3.40 to settle at $939.20 an ounce.

In currency trading, the dollar fell versus the euro and gained against the Japanese yen. 

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