By Michael Patterson
Dec. 6 (Bloomberg) -- U.S. stocks climbed to the highest level in a month, led by financial companies and builders, on expectations a government plan to limit subprime mortgage defaults will boost bank profits and ease the housing slump.
Countrywide Financial Corp. and Fannie Mae rallied after President George W. Bush said some borrowers will be able refinance or freeze interest rates on adjustable-rate loans. Lennar Corp. and D.R. Horton Inc. led a gauge of homebuilders to its biggest advance ever. Thirty-two of 34 energy companies in the Standard & Poor's 500 Index gained after crude-oil prices rebounded from a six-week low.
The S&P 500 added 22.33, or 1.5 percent, to 1,507.34, with builders and financial firms making up the 10 biggest gains. The Dow Jones Industrial Average climbed 174.93, or 1.3 percent, to 13,619.89. The Nasdaq Composite Index increased 42.67, or 1.6 percent, to 2,709.03. More than six stocks gained for every one that fell on the New York Stock Exchange.
``The whole subprime mess has been the wrench in the gears for the stock market,'' said Harry Clark, who oversees about $1.3 billion as chief executive officer of Clark Capital Management in Philadelphia. ``Anything that looks like it's going to solve or ameliorate that problem is going to be positive for the market.''
Optimism about the plan that may allow as many as 1.2 million Americans to keep their homes helped banks and brokerages rally for a second day even after analysts at Lehman Brothers Holdings Inc. and Merrill Lynch & Co. slashed their earnings estimates for securities firms. Gains in benchmark indexes were limited as retailers including Target Corp. and J.C. Penney Co. reported November sales that trailed analysts' estimates.
Countrywide, Fannie Mae
Countrywide, the largest mortgage lender, increased $1.68 to $12.10. Fannie Mae, the biggest source of financing for U.S. home loans, climbed $2.61 to $38.74. Washington Mutual Inc., the nation's largest savings and loan, gained 54 cents to $19.13. Citigroup Inc., the largest bank, added 66 cents to $34.35.
The 93-member S&P 500 Financials Index climbed 2.6 percent today, extending its rebound from a two-year low on Nov. 26 to 12 percent. The gauge is still down 15 percent in 2007.
The plan to stem defaults comes as more Americans fall behind on their mortgage payments and foreclosures surge. The share of all home loans with payments more than 30 days late rose to the highest since 1986 in the third quarter as borrowers were unable to refinance or sell their homes, the Mortgage Bankers Association said today. New foreclosures hit an all-time high for a second consecutive quarter.
The agreement offers help in one of three ways: freezing rates, refinancing into a new private mortgage, or obtaining a loan backed by the Federal Housing Administration.
Treasuries dropped, pushing the 10-year note's yield above 4 percent for the first time this week, as the government's plan to limit defaults reduced demand for the relative safety of U.S. debt. The dollar fell against the euro.
Wells Fargo & Co., the second-largest U.S. mortgage lender, said it will start offering an interest-rate freeze on some subprime mortgage loans within the next few weeks. Its shares added 19 cents $32.59.
By freezing interest rates, ``we're not going to see the kind of pressures people fear in the real-estate market,'' said Michael Williams, who helps oversee about $2.8 billion as managing director of Genesis Partners in New York. ``We think this is another buying opportunity.'' Williams said he's been buying shares of financial companies including Citigroup.
The S&P 500 Homebuilding Index climbed 13 percent, the most ever, extending its rally from a five-year low on Nov. 27 to 32 percent. Lennar, the country's biggest homebuilder by sales, added $2.48 to $18.73. D.R. Horton, the second largest, increased $1.49 to $14.12.
Toll Brothers Inc., the largest U.S. builder of luxury homes, gained $2.70 to $23.42 after reporting a fiscal fourth- quarter loss that was smaller than analysts estimated.
MBIA Inc. jumped $2.42 to $29.84. The world's largest bond insurer said it may raise capital to protect its AAA credit rating from a possible downgrade by Moody's Investors Service. MBIA has tumbled 59 percent this year after rising mortgage defaults prompted downgrades of securities it guarantees.
Energy producers rallied after oil futures rebounded 3.1 percent to $90.23 a barrel in New York on a drop in U.S. inventories as refiners prepared to meet heating demand. Exxon Mobil Corp., the biggest U.S. oil company, gained $1.52 to $91.44. Chevron Corp., the second-largest, added $2.08 to $91.38. The S&P 500 Energy Index increased 2.4 percent.
Rebound From 'Correction'
The S&P 500 has rebounded 7.1 percent from a three-month low on Nov. 26 that marked the index's first so-called correction in four years. The benchmark is up 6.3 percent on the year, yet still about 3.7 percent below its all-time closing high of 1,565.15 on Oct. 9.
American International Group Inc. jumped $3.20, or 5.5 percent, to $61.35 for the top gain in the Dow average. Goldman Sachs Group Inc. reaffirmed its ``buy'' rating on the world's largest insurer and said AIG's increased disclosure of its mortgage-related assets may boost the stock. AIG said yesterday writedowns linked to the U.S. housing market are ``manageable.''
Apple Inc. gained $4.45 to $189.95. Bear Stearns Cos. analysts raised their fiscal 2008 profit estimate to $5.40 a share from $5.25, citing higher iPod sales and better-than- expected demand for Macintosh computers in Asia. The stock may climb to $249 by the end of next year, analysts led by Andrew Neff said.
Analysts at Lehman and Merrill cut their 2008 earnings estimates for Wall Street's biggest securities firms, following reduced projections earlier this week from analysts at JPMorgan Chase & Co., Deutsche Bank AG and Citigroup.
Lehman analyst Roger A. Freeman lowered his profit estimates for Merrill, Bear Stearns, Morgan Stanley and Goldman, citing deteriorating debt markets. Merrill's Guy Moszkowski downgraded Morgan Stanley and Goldman to ``neutral'' from ``buy,'' reducing his earnings estimates for both banks as well as for Bear Stearns, Lehman Brothers, JPMorgan and Citigroup.
Merrill climbed $3.58 to $61.33 on speculation the government's plan to stem defaults will help limit losses on mortgage-related securities. Bear Stearns gained $5.61 to $98.21. JPMorgan added $1.31 to $46.21. Morgan Stanley rose $1.47 to $51.58. Goldman increased $4.25 to $222.51.
Ratings company S&P said bondholders may benefit if the Treasury's plan results in fewer foreclosures. Still, S&P said loan modifications could lead to ratings cuts on some residential mortgage-backed securities if they reduce payments available to investors from creditworthy borrowers.
Target, the second-biggest U.S. discount chain, dropped $4.56 to $55.57. J.C. Penney, the third-largest U.S. department- store company, lost $1.01 to $44.84. Retailers may feel pressure to slash prices this month and next as consumers struggle with lower home prices and higher energy and food costs.
Initial jobless claims decreased to 338,000 last week, the Labor Department said. Economists expected the report to show a decline to 335,000. The four-week moving average, a less volatile measure, rose to 340,250, the highest since October 2005, from 335,500 a week earlier.
The report damped optimism spurred yesterday after ADP Employer Services said private companies added 189,000 workers in November, more than three times the number economists had forecast. The Labor Department may report tomorrow that 80,000 jobs were created in November, down from 166,000 in October, according to a Bloomberg survey of economists.
The Bank of England cut its benchmark interest rate for the first time in two years today, saying inflation is likely to slow as higher credit costs hurt economic growth. Economists were the most split about today's decision in three years, with 28 of the 62 economists surveyed by Bloomberg forecasting the central bank would lower rates. The European Central Bank left interest rates unchanged at 4 percent, as predicted by all 62 economists surveyed by Bloomberg survey.
The Federal Reserve will release its decision on interest rates Dec. 11. The odds of a quarter-percentage point cut in the Fed's benchmark lending rate at the meeting are 66 percent, Fed funds futures contracts indicate. Futures are pricing in a 34 percent chance of a half-point cut to 4 percent, down from 44 percent odds yesterday.
Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., said the Federal Reserve should cut the discount rate more than the federal funds rate to encourage more lending by banks. The discount rate is what the Fed charges banks for loans.
The Russell 2000 Index, a benchmark for companies with a median market value of $616.1 million, climbed 2.8 percent to 786.95. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, increased 1.6 percent to 15,203.36. Based on its advance, the value of stocks increased by $299.8 billion.
American International Group Inc. (AIG US)
Apple Inc. (AAPL US)
Bear Stearns Cos. (BSC US)
Chevron Corp. (CVX US)
Citigroup Inc. (C US)
Countrywide Financial Corp. (CFC US)
D.R. Horton Inc. (DHI US)
Exxon Mobil Corp. (XOM US)
Fannie Mae (FNM US)
Goldman Sachs Group Inc. (GS US)
J.C. Penney Co. (JCP US)
JPMorgan Chase & Co. (JPM US)
Lehman Brothers Holdings Inc. (LEH US)
Lennar Corp. (LEN US)
MBIA Inc. (MBI US)
Merrill Lynch & Co. (MER US)
Target Corp. (TGT US)
Toll Brothers Inc. (TOL US)
Washington Mutual Inc. (WM US)
Wells Fargo & Co. (WFC US)