By Sarah Jones and Lynn Thomasson
Sept. 18 (Bloomberg) -- U.S. stock-index futures advanced and European shares rallied after profit at Lehman Brothers Holdings Inc. exceeded analyst estimates and investors speculated the Federal Reserve will cut interest rates.
Lehman, the biggest underwriter of U.S. mortgage bonds, gained after fees from stock trading offset some losses from subprime mortgages. Adobe Systems Inc. climbed after the largest maker of design software said profit more than doubled.
Standard & Poor's 500 Index futures expiring in December added 8.4 to 1,498.2 as of 8:56 a.m. in New York. Dow Jones Industrial Average futures increased 62 to 13,565 and Nasdaq 100 Index futures advanced 16.5 to 2,022.5.
Lehman's profit and a report that showed prices paid to U.S. producers had the steepest drop since October may allay investor concern the economy is headed for a recession. Slowing inflation may give the central bank room to reduce its benchmark interest rate today for the first time in four years.
``If the Fed cuts by 25 basis points, we are reassured that they do intend to see off this crisis,'' said Jonathan Monk, a U.S. stocks fund manager at Aerion Fund Management in London, which oversees $23 billion.
The Fed decision on interest rates is scheduled for 2:15 p.m. in Washington.
Lehman increased $1.34 to $59.96. Third-quarter net income fell 3 percent to $887 million, or $1.54 a share, as revenue from fixed-income trading dropped 47 percent. Earnings topped the $1.48 a share average estimate of analysts surveyed by Bloomberg.
European stocks climbed following Lehman's earnings report. The Dow Jones Stoxx 600 Index increased 1.3 percent to 366.80 after earlier falling as much as 0.3 percent. HSBC Holdings Plc, Europe's largest bank by market value, added 1 percent to 890.5 pence. Barclays Plc, the U.K.'s third-biggest bank, jumped 3.8 percent to 603 pence.
Lehman is the first of the five biggest U.S. securities firms to post third-quarter profits. Morgan Stanley reports results tomorrow, followed by Goldman Sachs Group Inc. and Bear Stearns Cos. on Sept. 20. Merrill Lynch & Co.'s earnings will be published next month.
U.S. stocks retreated yesterday as withdrawals from British mortgage lender Northern Rock Plc reignited concern over the cost of credit and sent the S&P 500 Index down for the first time in five days.
Adobe Systems climbed $2.04 to $45.10. The company said yesterday that third-quarter profit more than doubled to $205.2 million. Sales gained 41 percent to $851.7 million in the period ended Aug. 31, beating the average estimate from analysts of $789.8 million.
Producer prices fell 1.4 percent, the Labor Department said in Washington. The decline was more than the 0.3 drop forecast by a poll of Bloomberg economists and followed a 0.6 percent increase in July. So-called core producer prices, which exclude fuel and food costs, rose 0.2 percent, after a 0.1 percent gain the month before.
Last Updated: September 18, 2007 09:00 EDT