Sunday, September 23, 2007

U.S. Stocks Surge the Most Since March After Fed Cuts Rates

By Michael Patterson

Sept. 22 (Bloomberg) -- U.S. stocks posted the biggest weekly gain since March, pushing the Dow Jones Industrial Average to within 181 points of a record, after the Federal Reserve cut its benchmark interest rate by half a percent.

Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. helped lead energy and raw-material stocks higher on expectations lower borrowing costs will buoy the U.S. economy and boost demand for commodities. Goldman Sachs Group Inc. climbed the most since April 2001 after reporting a 79 percent profit gain, easing concerns that turmoil in credit markets will curb earnings at banks and brokerages.

The Standard & Poor's 500 Index advanced 2.8 percent to 1,525.75, putting the measure 1.8 percent away from its July all- time high. The Dow average added 2.8 percent to 13,820.19. The Nasdaq Composite Index rose 2.7 percent to 2,671.22.

The S&P 500 had its steepest one-day rally in four years on Sept. 18 after Fed policy makers led by Chairman Ben S. Bernanke cut the federal funds rate to 4.75 percent, lower than most economists surveyed by Bloomberg predicted. The central bank pledged to ``act as needed'' to prevent credit-market losses and the housing slump from dragging down the economy.

``The market was hoping for a cut, and they got a big one,'' said Stephen Wood, who helps manage $221 billion as senior portfolio strategist at Russell Investment Group in New York. ``That should be buoyant for equity prices.''

First Since 2003

The Fed's cut was the first since 2003. The fed funds rate, which banks charge each other for loans, had stood at 5.25 percent since June 2006. That's when the central bank ended a two-year run of increases that lifted the rate from a four-decade low of 1 percent.

``Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the rate-setting Federal Open Market Committee said in a statement.

Energy companies and raw-material producers, whose earnings are sensitive to economic growth, rallied.

Exxon, the world's biggest oil company, added 4.1 percent to $92.31 after crude rose for a fourth straight week and reached a record high of $83.90 a barrel in New York on Sept. 20. Freeport, the fifth-largest gold producer, climbed 11 percent to $108.67 as bullion surged to a 27-year high.

Bank Shares Gain

Financial shares in the S&P 500 climbed 2.7 percent as a group after Goldman and Lehman Brothers Holdings Inc. reported third-quarter profit that topped analysts' estimates.

Goldman increased 10 percent to $209.98. The world's largest securities firm had the third-best profit in its 138-year history after betting against the mortgage bonds that roiled credit markets. Earnings beat the highest analyst estimate by more than 20 percent, the seventh consecutive that the company has surpassed expectations.

Lehman advanced 5.4 percent to $62.70. The largest U.S. underwriter of mortgage-backed bonds reported a smaller profit decline than analysts estimated after it limited losses on home loans and leveraged-buyout financing.

Technology shares climbed after Oracle Corp. reported earnings that topped analysts' estimates and Texas Instruments Inc. said it plans to buy back more of its stock.

Oracle, the world's third-biggest software maker, advanced 9.5 percent to $21.98 for the largest weekly gain since September 2004. First-quarter profit climbed 25 percent to $840 million, while sales of new software licenses, an indicator of future growth, rose the most in a decade. The company also forecast sales for this quarter that topped projections.

`High Note'

Investors ``can go into the weekend on a high note with a large number of companies reporting above estimates on earnings for the quarter,'' said Wayne Wicker, who helps oversee $31.5 billion as chief investment officer at Vantagepoint Funds in Washington.

Texas Instruments rallied 5.6 percent to $36.62. The world's biggest maker of mobile-phone chips added $5 billion to its share buyback plan and increased its dividend by 25 percent.

Reports next week on gross domestic product, home sales and consumer spending may help investors gauge the impact of losses stemming from the subprime mortgage market's swoon.

``The real-estate crisis is worse than the market has realized,'' said Bruce McCain, who helps oversee about $30 billion as head of strategy for the investment management unit at Key Private Bank in Cleveland. ``The worst is yet to come in terms of foreclosures.''

In other markets, Treasury 10-year note yields posted their biggest weekly gain since March 2006 on speculation that Fed rate cuts will cause inflation to quicken and erode the value of fixed-income securities. The dollar fell for a third straight week versus the euro. The common European currency rose above $1.40 for the first time since it was introduced in 1999.

Last Updated: September 22, 2007 09:35 EDT

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