Thursday, January 24, 2008

U.S. Stocks Advance on Earnings, Government Stimulus Package

By Elizabeth Stanton

Jan. 24 (Bloomberg) -- U.S. stocks staged their biggest two- day rally since November after Xerox Corp. and Lockheed Martin Corp. reported profit that topped analysts' estimates and lawmakers agreed on a plan to pay tax rebates to families.

Xerox climbed the most in two years after the world's largest maker of high-speed color printers increased revenue by introducing new products. Lockheed Martin, the biggest defense company, posted its steepest advance since 2003 on higher sales of computer services to the government. Freeport-McMoRan Copper & Gold Inc., Exxon Mobil Corp. and Alcoa Inc. led gains in commodities producers after China's economy posted a fourth- straight quarter of growth above 11 percent.

The Standard & Poor's 500 Index climbed 13.47, or 1 percent, to 1,352.07, paring its decline this year to 7.9 percent. The Dow Jones Industrial Average, which yesterday fell 326 points before ending the day 299 points higher, added 108.44, or 0.9 percent, to 12,378.61. The 30-stock gauge is still down 6.7 percent in 2008. The Nasdaq Composite Index climbed 44.51, or 1.9 percent, to 2,360.92, still off 11 percent in 2008.

``The earnings that have been reported for the fourth quarter have been better than expected, outside of the financial companies,'' said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.8 billion in Elmira, New York. ``Our economy, though it's slowed, is still in a growth trajectory. We don't expect a recession.''

Earnings Beat

So far, 61 percent of the S&P 500 companies that reported fourth-quarter earnings have topped analysts' estimates, according to Bloomberg data. Profits beat estimates at 28 of the 39 members of the index that released results either after the market's close yesterday or this morning.

Stocks also advanced after the Bush administration and House lawmakers announced an agreement on an economic stimulus plan that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment. The proposal also aims to stem mortgage-market losses by temporarily allowing Fannie Mae and Freddie Mac to buy home loans of up to $625,000, exceeding a $417,000 federal limit.

Xerox rose $1.08, or 8.2 percent, to $14.33 on the New York Stock Exchange. Fourth-quarter earnings climbed 79 percent after the company sold new devices that print, copy, fax and scan. The company also expanded document-management services in the financial and health-care industries and increased its share buyback program by $1 billion.

Xerox, Lockheed

Lockheed Martin climbed $4.21, or 4.1 percent, to $105.90. The company beat analysts' fourth-quarter profit estimate by 19 cents a share and increased its forecast for 2008 as sales of government computer services offset a drop in aircraft deliveries.

Union Pacific led railroad companies higher, advancing $3.95, or 3.4 percent, to $120.96. The largest U.S. railroad's fourth-quarter profit topped estimates on increased revenue from shipping farm products, chemicals and coal.

The Labor Department reported an unexpected drop in first- time claims for unemployment benefits to 301,000 last week, easing concern that the fallout from the collapse of the subprime mortgage market will drag the U.S. into recession.

'A Little Extra Cash'

Investors also said the government's stimulus package, which will pay rebates of $600 to eligible individuals and $1,200 to couples, may boost growth.

``It's going to put a little extra cash in a whole lot of pockets and probably a good portion of that will feed its way through to the economy,'' said Jeff Layman, chief investment officer at BKD Wealth Advisors, which manages about $1.5 billion in Springfield, Missouri. ``The more lasting impact will be if it improves people's outlooks.''

Freeport-McMoRan, the world's second-biggest copper miner, added $6.13 to $83.43, its steepest advance since June 2006, after copper prices gained the most in two weeks. Newmont Mining Co., the second-largest gold producer, rallied $2.47 to $52.97 as gold prices topped $900 an ounce for the first time in a week. Alcoa Inc., the world's third-largest aluminum producer, rose 5.6 percent, the most in the Dow average, to $30.81

Exxon Mobil, the largest U.S. energy company, rose $2.55 to $86, its biggest advance since November. Crude rose from a three- month low, gaining $2.42 to $89.41 a barrel in New York.

China's 11.2 percent economic expansion in the three months ended Dec. 31 bolstered expectations that demand at companies that produce energy and metals will remain strong even as growth in the U.S. cools.

Commodity, Tech Shares Rally

Energy companies in the S&P 500 climbed 3.2 percent as a group, the steepest advance among 10 industries. Technology companies increased 3 percent and producers of raw materials rallied 2.9 percent for the second- and third-biggest gains.

Qualcomm Inc., the second-biggest maker of chips that run mobile phones, increased $3.78, or 10 percent, to $40.41 on the Nasdaq Stock Market, its biggest gain in four years. Revenue may rise as high as $10 billion this year, more than the $9.9 billion previously forecast, the company said last night after the close of U.S. exchanges.

LSI Corp., the maker of computer-storage chips for Seagate Technology, and Teradyne Inc., a maker of semiconductor-testing equipment, also advanced after earnings topped analysts' estimates.

LSI surged 84 cents, or 21 percent, to $4.85, the biggest gain in the S&P 500. Teradyne added $1.01, or 11 percent, to $10.18.

Makers of computer hard-disk drives rallied after Western Digital Corp. posted earnings that more than doubled on its expansion into markets for video recorders and laptops. Western Digital advanced $1.97 to $26.91.

EBay Slumps

EBay Inc. retreated $1.76 to $27.18. The largest Internet auctioneer projected full-year profit of $1.63 to $1.67 a share, compared with the average estimate of $1.67 in a Bloomberg survey. EBay said sales in 2008 will be as much as $8.75 billion, less than the $9.04 billion estimated by analysts. The company also said John Donahoe will succeed Meg Whitman as chief executive officer.

MBIA Inc. and Ambac Financial Group Inc., the biggest U.S. bond insurers, tumbled after New York State's insurance regulator said a rescue of bond guarantors will ``take some time.''

The possible bailout of bond insurers yesterday helped send the U.S. stock market to its biggest rally in two months.

Ambac lost its AAA credit rating from Fitch Ratings last week and Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA for downgrades, casting doubt on the $2.4 trillion of bonds the industry insures.

Ambac lost $2.37, or 17 percent, to $11.33. MBIA fell $2.21, or 13 percent, to $14.40.

Credit Downgrade

Fitch revoked its AAA bond insurer grade on Security Capital Assurance Ltd. today, cutting the Hamilton, Bermuda-based company's XL Capital Assurance and XL Financial Assurance ratings five levels to A. The downgrade threw the rankings of at least $154.2 billion of securities in doubt. The SCA units guarantee municipal and corporate bonds.

SCA lost $1.16, or 31 percent, to $2.63, the biggest drop in its two years as a public company.

Traders pared bets that the Federal Reserve will cut its benchmark interest rate by half a percentage point when policy makers meet next week. The odds of a 0.5 percentage point reduction in the target rate for overnight loans between banks fell to 68 percent from 76 percent yesterday, futures trading showed. Traders priced in a 32 percent chance for a quarter-point cut to 3.25 percent.

The Dow Jones Stoxx 600 Index of European companies rallied 5.2 percent, its biggest gain since March 2003, while the MSCI World Index of 23 developed markets climbed 3.1 percent, the most since October 2002.

The Russell 2000 Index, a benchmark for companies with a median market value of $523 million, dropped 0.1 percent to 692.72. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1 percent to 13,608.44. Based on its advance, the value of stocks increased by $169.1 billion.

About five stocks advanced for every four that fell on the NYSE.

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