Monday, February 11, 2008

U.S. Stocks Gain as Oil Shares Rally, Offsetting Credit Concern

By Eric Martin

Feb. 11 (Bloomberg) -- U.S. stocks rose as a rally in oil prices boosted energy shares, outweighing concern that financial companies face more writedowns after American International Group Inc. said it overstated the value of some assets.

Exxon Mobil Corp. and ConocoPhillips led energy producers to their third-straight gain. Chevron Corp. climbed after being added to the Dow Jones Industrial Average. Yahoo! Inc. rose to a three-month high following its rejection of Microsoft Corp.'s $44.6 billion takeover bid as too low. AIG fell the most since 1987 as auditors said they found weakness in the insurer's accounting for credit-default swaps. Prudential Financial Inc. and JPMorgan Chase & Co. also fell.

The Standard & Poor's 500 Index added 7.84 points, or 0.6 percent, to 1,339.13 after earlier falling as much as 0.8 percent. The Dow average gained 57.88, or 0.5 percent, to 12,240.01, erasing a drop of as much as 113 points and rebounding from the worst week in almost five years. The Nasdaq Composite Index increased 15.21, or 0.7 percent, to 2,320.06. About nine stocks advanced for every seven that fell on the New York Stock Exchange.

``You've had some measure of indiscriminate selling such that you can find real attractive value opportunities,'' said Christian Andreach, who helps manage more than $15 billion at Manning & Napier Advisors Inc. in Fairport, New York. ``The technology shares were out of favor for much of the year, so people are getting back in. What will probably drive oil prices is the perception of the health of the economy.''

Exxon, ConocoPhillips

Energy shares in the S&P 500 gained 32 percent in 2007 for the steepest advance among 10 industries as global economic growth boosted demand around the world. Technology companies added 16 percent last year, the fourth-biggest gain, before giving up all the gains since the beginning of 2008.

Exxon Mobil, the largest U.S. oil company, climbed $1.51 to $83.22. ConocoPhillips, the third-biggest, gained $1.59 to $76.97.

Oil prices rose to a one-month high after Valero Energy Corp. shut a Delaware refinery because of a power failure late yesterday. Crude for March delivery rose $1.82, or 2 percent, to $93.59 a barrel.

Chevron gained $1.17 to $80.43. Bank of America Corp., the second-biggest U.S. bank by assets which was also added to the Dow average, slipped 2 cents to $42.14. The two companies will replace Altria Inc. and Honeywell International Inc. in the Dow average on Feb. 19.

Dow Revisions

Altria, the world's largest tobacco company, lost 67 cents to $72.42. Honeywell, the biggest maker of aircraft controls, decreased 19 cents to $57.64.

The revisions to the 30-member gauge were prompted by Altria's spinoff of Kraft Foods Inc. last March and the planned divestiture of its overseas tobacco unit next month, according to a statement from Dow Jones Indexes, a unit of News Corp. Honeywell was removed because the role of industrial companies in the U.S. stock market has declined in recent years, and Honeywell had the smallest revenue and earnings among the gauge's members, according to the Dow Jones statement.

Technology companies advanced after Yahoo said Microsoft's $31-a-share bid ``substantially undervalues'' the company.

Yahoo added 67 cents, or 2.3 percent, to $29.87. Microsoft lost 35 cents to $28.21.

``It's not a bad time to look at technology stocks right now, as long as you have some patience,'' said Jeffrey Davis, who helps manage about $4.8 billion as chief investment officer at Lee Munder Capital Group in Boston. ``The valuations for growth are pretty reasonable, and there is a lot of dynamism.''

Motorola, GM

Motorola Inc. gained 31 cents to $11.57 after the Wall Street Journal said the biggest U.S. mobile-phone maker and Nortel Networks Corp. may combine their wireless infrastructure units in the latest response to sluggish growth in the telecom- equipment industry. Nortel spokesman Jay Barta declined to comment when contacted by Bloomberg News. An e-mailed message to Motorola representative Kelly Harder wasn't immediately returned. Nortel slid 18 cents to $10.89.

General Motors Corp. surged the most in the Dow average, adding $1.32, or 5.1 percent, to $27.12. The world's biggest automaker, scheduled to report results before the open of U.S. exchanges tomorrow, may earn $12.75 a share by 2010, boosted by rising output abroad and a cost-saving labor contract, according to Burnham Securities Inc. analyst David Healy. Analysts expect GM to post a loss of 64 cents a share for the fourth quarter tomorrow, according to a Bloomberg survey.

Darden Gains

Darden Restaurants Inc. gained $2.15, or 8 percent, to $29.01. The owner of the Red Lobster and Olive Garden chains said third-quarter profit may exceed analysts' estimates. Earnings per share may be 83 cents to 85 cents a share, excluding merger costs and accounting adjustments, Darden said. The average estimate of 13 analysts surveyed by Bloomberg was 77 cents.

Metal producers rallied as bullion and copper prices climbed. Gold futures rose to a one-week high as rising energy costs boosted the appeal of the precious metal as a hedge against inflation. Copper climbed to the highest in more than three months as falling production and slumping inventories heightened speculation that metal supplies will trail demand.

Freeport-McMoRan Copper & Gold Inc., the world's second- largest copper producer, climbed $2.61, or 2.9 percent, to $93.48. Goldcorp Inc., the second-largest gold producer by market value, added 27 cents to $37.12.

AIG Tumbles

AIG, the world's largest insurer, slumped $5.94, or 12 percent, to $44.74. Credit-default swaps issued by AIG lost $4.88 billion in value in October and November, four times more than previously disclosed, AIG said today in a filing with the U.S. Securities and Exchange Commission. AIG's auditors found ``material weakness'' in its accounting for the contracts, the company said.

Prudential Financial, the second-biggest U.S. life insurer, lost $4.51 to $67.36.

A gauge of financial shares dropped 1.9 percent, the most among 10 industries in the S&P 500. Citigroup Inc., Merrill Lynch & Co. and JPMorgan fell as Goldman Sachs Group Inc. said they face rising losses on loans used to finance buyouts.

Citigroup may need to write down $2.2 billion of its $43 billion of unsold loans, more than any other firm, causing a 5 percent reduction in 2008 earnings per share, Goldman said in a report dated yesterday. Merrill may lower earnings by 6 percent as it writes off $800 million, and JPMorgan faces a 2 percent cut in income from a $900 million markdown, Goldman analysts said.

Banks Slump

Citigroup, the largest U.S. bank by assets, dropped 22 cents to $25.81. Merrill, the third-biggest securities firm, declined 27 cents to $51.92. JPMorgan, the third-largest U.S. bank, fell 47 cents to $43.35.

Loews Corp., the holding company run by New York's Tisch family, dropped $3.73, or 8.3 percent, to $41. The company said fourth-quarter profit fell 31 percent as results ebbed from insurance and oil-drilling.

Group of Seven finance ministers and central bankers ended a weekend meeting in Tokyo by warning of further financial- market turmoil and indicating they will be forced into more interest-rate cuts and tax reductions to shore up the global economy. The officials said in a statement that ``downside risks persist,'' including the U.S. housing slump and tighter credit conditions. Without proposing specific remedies, the G-7 pledged ``appropriate actions, individually and collectively.''

Traders see a 34 percent chance the Federal Reserve will lower its target for the overnight lending rate between banks by 0.75 percentage point to 2.25 percent, up from 30 percent odds on Feb. 8, according to Fed funds futures. Traders saw no chance of a reduction of that size a week ago. The rest of the bets are for a half-point cut.

The Russell 2000 Index, a benchmark for companies with a median market value of $528 million, gained 0.1 percent to 699.75. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.6 percent to 13,561.82. Based on its advance, the value of stocks increased by $96.1 billion.

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