Monday, January 14, 2008

U.S. Stocks Rise After IBM's Earnings Top Analysts' Estimates

By Eric Martin

Jan. 14 (Bloomberg) -- U.S. stocks rallied, sending the Dow Jones Industrial Average and Nasdaq Composite Index to their biggest gains this year, after International Business Machines Corp.'s earnings beat forecasts.

IBM, the world's biggest computer-services provider, rose the most in five years in New York Stock Exchange trading and triggered the steepest advance in technology shares since November. Newmont Mining Corp., the world's second-largest gold miner, and Halliburton Co., the second-biggest oilfield services company, gained as gold and oil advanced, helping the market rebound from three straight weeks of losses.

The Standard & Poor's 500 Index, off to its worst start for a year since 1991, added 15.23, or 1.1 percent, to 1,416.25. The Dow average rose 171.85, or 1.4 percent, to 12,778.15. The Nasdaq Composite increased 38.36, or 1.6 percent, to 2,478.3. Two stocks advanced for every one that fell on the NYSE.

``The IBM news is a welcome relief to a market that's under pressure,'' said Mark Bronzo, who helps manage $11 billion at Security Global Investors in Irvington, New York. ``Hopefully IBM sets the tone that we're going to hear from a lot of other companies, that earnings are going to be OK.''

Profit Slump

Higher profits from computer companies may limit a broader decline in earnings in the fourth quarter as financial companies write off more losses from investments linked to subprime mortgages. Technology companies in the S&P 500 are forecast to post average profit growth of 22 percent in the final quarter of 2007, compared with a drop of 10 percent in the entire index, according to a Jan. 11 Bloomberg survey.

IBM gained $5.26, or 5.4 percent, to $102.93 and accounted for about a quarter of the Dow average's advance. Sales rose to $28.9 billion in the fourth quarter, the company said in a statement of preliminary results, helped by growth in Asia, Europe and developing countries. That topped the $27.7 billion average of analysts' estimates compiled by Bloomberg. Profit from continuing operations climbed to $2.80 a share, also beating projections.

Apple Inc. added $6.09 to $178.78. The company's 2008 earnings may climb to $5.04 a share on sales of $31.7 billion, Bank of America analysts led by Scott Craig wrote in a research note. Craig's previous estimates were $4.87 a share and $30.7 billion, respectively.

Chief Executive Officer Steve Jobs may unveil new products at the company's annual Macworld conference tomorrow in San Francisco, including a slimmed-down laptop, a higher-capacity model of the iPhone and a digital movie-rental service, Craig wrote.

Tech Rally

The S&P 500 Information Technology Index climbed 2.6 percent, paring its 2008 decline to 7.2 percent, the worst performance among 10 industry groups in the equity benchmark this year. Intel Corp., the world's largest computer-chip maker, is scheduled to report earnings tomorrow, with its smaller competitor, Advanced Micro Devices Inc., expected to report on Jan. 17.

``There are certain areas of technology where we like the opportunities,'' said Steve Roukis, who helps oversee about $1.8 billion at Matrix Asset Advisors Inc. in New York. ``The larger global companies like IBM have currency benefits'' as a weaker U.S. dollar helps spur overseas sales.

Dollar Retreats

The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.

Traders boosted bets the Fed will lower rates by 0.75 percentage point to spur economic growth at its Jan. 30 meeting. Fed Chairman Ben S. Bernanke, who economists say has signaled a more aggressive response to the risk of recession, testifies to Congress on Jan. 17.

Fed fund futures showed traders see a 48 percent probability the central bank will lower its benchmark interest rate by 0.75 percentage point this month. Before Jan. 11, traders saw no chance of a three-quarter point cut to 3.5 percent. The balance of the odds are for a half-point cut.

Newmont Mining climbed $1.50 to $56.22. Gold and platinum advanced to records and crude oil rose for the first time in four days as the declining dollar increased demand for precious metals and energy as an inflation hedge.

Halliburton added 57 cents to $36.49. Schlumberger Ltd., the world's largest oilfield-services provider, gained $1.52 to $95.53.

'Overweight' U.S. Shares

Credit Suisse Group turned positive on U.S. shares for the first time this decade today. The brokerage lifted its recommendation on American equities to ``overweight'' from ``benchmark,'' saying the central bank is showing commitment to help economic growth.

General Electric Co. advanced 29 cents to $35.46. The world's biggest maker of electricity generation equipment said its GE Energy Financial Services unit has raised its 2010 renewable energy investing target by 50 percent to $6 billion.

Home Depot Inc., Bed Bath & Beyond Inc. and Lowe's Cos. gained. The home-improvement stocks are undervalued relative to other retail stocks, Credit Suisse Group analyst Gary Balter wrote in a note to clients. He raised his rating on the shares of the three companies to ``outperform'' from ``neutral.''

Home Depot added 68 cents to $25.39, Bed Bath & Beyond climbed 52 cents to $26.66 and Lowe's gained 53 cents to $20.84.

Terex, Citigroup

Terex Corp. surged $3.81, or 7.2 percent, to $56.74. The third-largest maker of construction cranes agreed to buy ASV Inc. for about $488 million in cash to add compact rubber-track loaders to its line of building machines. ASV jumped $5.50 to $17.79. Separately, Barron's reported that Terex may draw a bid of as much as $100 a share in a takeover, citing the head of Defiance Asset Management, which owns the stock.

Citigroup Inc. climbed 50 cents to $29.06. The biggest U.S. bank by assets may report a fourth-quarter loss tomorrow of $4 billion, the first since the early 1990s, according to a survey of eight analysts by Bloomberg. Citigroup also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.

After the close of U.S. exchanges, the Wall Street Journal reported that Citigroup may also announce a ``sizable'' reduction to its annual dividend of $2.16. The shares gained 24 cents to $39.30 as of 6:07 p.m.

About 1.41 billion shares changed hands on the NYSE, 5.7 percent less than the three-month daily average.

Drugmakers Fall

Health-care stocks dropped 0.5 percent, the most among 10 industries in the S&P 500, led by Merck & Co. and Schering-Plough Corp. The drugmakers said their best-selling combination cholesterol pill Vytorin worked no better than an older, cheaper drug, threatening the medicine's sales.

Merck fell 77 cents, or 1.3 percent, to $59.78. Schering- Plough Corp. dropped $2.21, or 8 percent, to $25.52.

Sears Holdings Corp. tumbled $4.79 to $91.38. The department-store operator said U.S. sales fell at its namesake and Kmart retail chains by about 3.5 percent in the nine-week holiday shopping season ended Jan. 5 because of increased competition and a weak economy.

Harman International Industries Inc. lost more than a third of its value, plunging $25.97 to $43, the steepest drop in the S&P 500. The audio-equipment maker whose $8 billion buyout collapsed in September cut its earnings forecast because of falling prices for navigation devices.

U.S. stocks completed their third straight week of losses on Jan. 11, the longest streak of declines since August, as lower- than-estimated profit forecasts at American Express Co. and Tiffany & Co. heightened concern the economy is shrinking.

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