Buyout offers and some pleasant surprises for earnings helped East Bay stocks out-perform the national and Bay Area stock indices during a largely grim third quarter for investors that was haunted by the mortgage meltdown and credit crunch.

By the time the July-September quarter had ended on Tuesday, the East Bay 50 stock index tracked by this newspaper had increased 2.6 percent. That index consists of the 50 largest publicly traded companies in Alameda, Contra Costa, and Solano counties.

The East Bay stock performance may seem modest, but it was well ahead of the third-quarter losses of several other key indices.

The Dow Jones industrial average fell 4.4 percent, the broad- based S&P 500 index slid 9 percent, the tech-laden Nasdaq plunged 9.2 percent, and the Bloomberg Bay Area Index, consisting of the 100 largest Bay Area public companies, plummeted 9.8 percent during the third quarter.

The strongest performing national index was the Nasdaq Biotech Index, which rose 5.4 percent.

The weakest was the Amex Oil Index, which nose-dived by 24.7 percent amid fears of a drastic downturn for the economy.

"Short-term, I just don't know where we're headed," said Norm Loofbourrow, a financial advisor with American Investors Co. in San Ramon. "There is just so much uncertainty."

The real problem is a great number of investors have panicked and others have thrown in the towel. They remain on the sidelines are selling their investments until some form of stability materializes for the credit and financial markets.

"Things are being traded based on fear," said Libby Mihalka, president of Livermore-based Altamont Wealth Management. "You don't know where it will migrate next. Fear has a life of its own."

The issue that has spooked the markets and investors is a credit squeeze that has no obvious or speedy resolution.

"The credit crisis is the central issue," Loofbourrow said. "No one knows how businesses that need loans will continue to operate."

Investors found varied reasons to snap up the stocks of some Bay Area companies and a rationale to jettison the shares of others.

In the East Bay, a diverse group of companies led the third- quarter winners:

-- Longs Drug Stores Corp. of Walnut Creek soared 80 percent. Buyout offers from CVS Caremark Corp. and Walgreen Co. made Longs the prize in a bidding war and takeover attempt.

-- Questcor Pharmaceuticals Inc. of Union City was up 58 percent. The life sciences firm repurchased 1.8 million shares.

-- PMI Group Inc. of Walnut Creek rose 51 percent. The mortgage insurer disclosed it had reached a deal to sell its Asia unit.

-- Thoratec Corp. of Pleasanton increased by 51 percent. The medical device maker raised its earnings forecast.

-- Peet's Coffee & Tea Inc. of Emeryville was up 41 percent. The beverage retailer reported a 17 percent increase in second quarter earnings and said profits beat Wall Street estimates by a wide margin.

Oakland-based Zhone Technologies Inc. was the worst-performing East Bay stock during the third quarter. Zhone, a maker of communications equipment for networks, reported worst-than-expected quarterly earnings.

Across the Bay Area, banking companies that were well positioned powered to strong increases in their share prices during the quarter.

UCBH Holdings Inc. was the best-performing Bay Area company. The San Francisco-based bank rocketed 185 percent higher during the quarter primarily because of its earnings report and upgrades from analysts.

UnionBanCal Corp. of San Francisco jumped 81 percent, largely on a takeover bid by its parent Japanese company. Wells Fargo & Co. jumped 58 percent, primarily because analysts believe the San Francisco-based bank is well-positioned to endure the financial storms in the economy.

But investors will have to navigate through plenty of turbulence until confidence can be restored in the financial system.

"The credit markets have totally seized up," Mihalka said. "I've never seen anything like this. It all goes back to the housing market and falling home prices."

George Avalos covers jobs, economic development, commercial real estate, finance and oil companies. Reach him at 925-977-8477 or gavalos@bayareanewsgroup.com.

Originally published by George Avalos , Staff Writer.

(c) 2008 Oakland Tribune. Provided by ProQuest LLC. All rights Reserved.