U.S. Stocks Rise as Economy Expands, Fed Reduces Interest Rates

By Eric Martin


Oct. 31 (Bloomberg) -- U.S. stocks rose, locking in a third straight month of gains, after the economy expanded more than forecast and the Federal Reserve signaled its quarter-point interest-rate cut may be sufficient to sustain growth.

Microsoft Corp., the biggest software maker, and Intel Corp., the largest semiconductor company, led gains on prospects consumers will keep spending. Exxon Mobil Corp., the world's largest energy company, advanced as oil rose to a record $94.74 a barrel. Newmont Mining Corp., the second-largest gold producer, jumped the most in six years after profit doubled.

The Standard & Poor's 500 Index added 18.36, or 1.2 percent, to 1,549.38. The Dow Jones Industrial Average increased 137.54, or 1 percent, to 13,930.01. The Nasdaq Composite Index advanced 42.41, or 1.5 percent, to 2,859.12. Almost four stocks rose for every one that fell on the New York Stock Exchange.

``The Fed may be done here,'' said Jeffrey Kleintop, who helps oversee more than $150 billion as chief market strategist at LPL Financial Services in Boston. ``But we don't need them anymore and the market is taking consolation in that.''

The 3.9 percent growth in third-quarter gross domestic product eased concern that the housing slump and subprime mortgage defaults will drag the nation into a recession. The Fed said the reduction in the Federal funds rate to 4.5 percent should keep credit-market losses from hurting the broader economy.

U.S. stocks have gained in six of the seven weeks since the Fed's first rate reduction in four years on Sept. 18, pushing the S&P 500 Index up 4.9 percent since then. For the month, the S&P 500 added 1.5 percent, the Nasdaq climbed 5.8 percent and the Dow average gained 0.3 percent.

Energy Rally

Energy shares rose after crude oil advanced to a record $94.74 a barrel in New York following an Energy Department report that showed U.S. inventories fell to a two-year low. Oil advanced 16 percent this month.

Exxon climbed 85 cents to $91.99. Hess Corp. jumped $2.85 to $71.61. The fifth-largest U.S. oil company said third-quarter profit rose 33 percent as higher oil prices and production outweighed a narrowing of refining margins.

Microsoft rallied $1.24 to $36.81, its highest price since June 2001, after a Sanford C. Bernstein & Co. analyst said the shares were undervalued because of the company's growth potential. Technology shares increased 1.7 percent as a group.

Raw-materials producers gained the most among 10 industry groups in the S&P 500, climbing 2.5 percent. Newmont Mining, the world's second-largest gold producer, led gains, climbing $4.46 to $50.90. Third-quarter profit before one-time items rose to 57 cents a share, more than double the 25-cent average estimate of 13 analysts surveyed by Bloomberg.

Early Rally

Stocks rose before the Fed's decision after the government said higher exports, consumer spending and business investment boosted gross domestic product by the most since the first three months of 2006. Economists in a Bloomberg survey had forecast growth of 3.1 percent. The Fed's preferred gauge of inflation, which is tied to consumer spending and strips out food and energy costs, advanced at a 1.8 percent annual pace, above the 1.5 percent forecast by economists.

The Fed's decision wasn't unanimous. Kansas City Fed President Thomas Hoenig preferred no change.

``The economy seems to have weathered quite nicely the credit issues we experienced in late summer,'' said Thomas Sowanick, who helps oversee more than $10 billion as chief investment officer of Clearbrook Financial LLC in Princeton, New Jersey. ``We're seeing everything stronger than what we would have expected two months ago. Fourth-quarter earnings will reflect the rebound.''

Kraft Foods

Kraft Foods Inc. increased 81 cents to $33.41. The world's second-biggest food company reported third-quarter earnings before some items of 44 cents a share, beating the 41-cent average of 14 estimates in a Bloomberg survey.

Weyerhaeuser Co. added $1.60 to $75.91. The world's largest lumber company reported profit, excluding one-time items, of 55 cents, more than the 49-cent average estimate by 13 analysts surveyed by Bloomberg.

MasterCard Inc. jumped $32.76, or 21 percent, to $189.91, the biggest gain since its initial public offering in May 2006. The second-biggest credit card company reported earnings that beat analysts' estimates.

McKesson Corp. surged $7.55, or 13 percent, to $66.10, the steepest gain in the S&P 500. The biggest U.S. drug distributor posted fiscal second-quarter profit beat estimates and the company increased its 2007 forecast.

Jones Apparel Group Inc. gained $1.24 to $20.94. The maker of Jones New York clothing and Nine West shoes said profit climbed sixfold, topping analysts' estimates, after it sold its Barneys New York chain.

Business Barometer

Stocks also climbed after a private report from ADP Employer Services showed companies added 106,000 jobs in October, more than economists had forecast.

Another report showed U.S. business activity in October unexpectedly contracted to the lowest level since February as manufacturers restrained production and hiring. The National Association of Purchasing Management-Chicago said its business barometer decreased to 49.7 from 54.2 the prior month. Readings below 50 signal a contraction.

The Russell 2000 Index, a benchmark for companies with a median market value of $655 million, gained 1.5 percent to 828.02. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1.2 percent to 15,673.36. Based on its advance, the value of stocks increased by $239 billion.

Exxon Mobil Corp. (XOM US)
Garmin Ltd. (GRMN US)
Jones Apparel Group Inc. (JNY US)
Kraft Foods Inc. (KFT US)
MasterCard Inc. (MA US)
McKesson Corp. (MCK US)
Microsoft Corp. (MSFT US)
Newmont Mining Corp. (NEM US)
Weyerhaeuser Co. (WY US)