By Michael Patterson
Feb. 1 (Bloomberg) -- U.S. stocks rose, capping their best weekly gain in five years, after Microsoft Corp.'s $44.6 billion bid for Yahoo! Inc. and a plan to rescue bond insurers overshadowed the first decrease in jobs since 2003.
Yahoo, the second-ranked Internet search engine, climbed the most since the day of its 1996 initial public offering. Ambac Financial Group Inc. led financial shares higher on speculation a group of eight banks including Citigroup Inc. will provide the bond guarantor with financing. General Electric Co. gained for a fifth day in New York trading as the Institute for Supply Management's manufacturing index unexpectedly advanced.
The Standard & Poor's 500 Index added 16.87 points, or 1.2 percent, to 1,395.42, rebounding from its biggest January loss since 1990. The Dow Jones Industrial Average climbed 92.83, or 0.7 percent, to 12,743.19. The Nasdaq Composite Index increased 23.5, or 1 percent, to 2,413.36. Five stocks gained for every one that fell on the New York Stock Exchange.
``There's nothing like a good M&A story to get things rolling,'' said Edgar Peters, who oversees $25 billion as chief investment officer at PanAgora Asset Management in Boston. ``The market has already discounted a mild recession. If the news doesn't get a lot worse, the market can actually rally.''
Stocks briefly erased gains after the Justice Department said it may review the antitrust implications of Microsoft's offer for Yahoo. Still, the bid spurred speculation that mergers and acquisitions will stoke further rallies as corporate buyers exploit falling stock prices. Takeovers climbed to a record last year, helping to push the S&P 500 to an all-time high, before a jump in financing costs slowed the pace of deals.
The S&P 500 climbed 4.9 percent this week, trimming its yearly loss to 5 percent. The Dow average gained 4.4 percent this week and the Nasdaq increased 3.8 percent. Europe's benchmark index also rose this week while the MSCI Asia Pacific Index dropped. China's CSI 300 Index posted its steepest weekly decline since its inception in 2005 on concern the worst winter storms in 50 years will reduce economic growth.
Google Inc. and Microsoft were the biggest drags on the S&P 500 today after the most-popular search engine posted lower-than- expected earnings and investors speculated Microsoft offered too much for Yahoo.
Raw-materials producers aided the market's advance after Alcoa Inc. and Aluminum Corp. of China bought a $14 billion stake in Rio Tinto Group in an attempt to derail BHP Billiton Ltd.'s hostile bid for the largest aluminum maker. The deal reinforced expectations that more mining companies will become acquisition targets.
Yahoo climbed $9.20, or 48 percent, to $28.38. Microsoft's unsolicited bid offered Yahoo shareholders cash or stock in the world's largest software maker. Yahoo pared a gain of as much as 56 percent after the Justice Department said it may review the deal. Microsoft shares fell $2.15, or 6.6 percent, to $30.45, the biggest drop since April 2006.
Time Warner Inc., whose AOL unit offers e-mail and search services, gained 38 cents to $16.07. EBay Inc., the world's biggest online auctioneer, added $1.92 to $28.81.
``You want to stay with tech,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees about $204 billion, said in a Bloomberg Television interview. ``You're going to see more of these strategic acquisitions help offset some of the negative news in the economy.''
GE added 80 cents to $36.16 and led a 1.6 percent gain in the S&P 500 Industrials Index. The Institute for Supply Management's manufacturing index rose to 50.7, from 48.4 in December, the Tempe, Arizona-based group said. Fifty is the dividing line between contraction and expansion.
Bond Insurer Plan
Ambac gained $1.56 to $13.20. New York Insurance Superintendent Eric Dinallo is trying to organize a bank-led rescue of Ambac after mortgage-related losses cost the bond insurer its AAA credit grade from Fitch Ratings, according to two people briefed on the plan. Ambac spokesman Peter Poillon didn't return calls seeking comment.
``While we cannot discuss specifics, there are a number of developments relating to the bond insurers,'' Dinallo said in a statement. ``We are continuing to communicate with all parties to help them reach firm deals as soon as possible.''
MBIA Inc., the world's biggest bond insurer, added 86 cents to $16.36.
Speculation about whether the guarantors will maintain the AAA credit ratings they rely on to insure $2.4 trillion in securities has contributed to larger-than-average price swings in the U.S. stock market. Intraday moves in the Dow industrials averaged 264 points this week, three times the average of a year ago.
The credit scores have come under scrutiny by ratings services such as Moody's and S&P on concern the insurers won't have the capital to pay off claims stemming from falling values on investments backed by subprime mortgages. Moody's Investors Service said today it may downgrade some bond insurers in the next few weeks.
Citigroup, the biggest U.S. bank by assets, added $1.52 to $29.69 today. JPMorgan Chase & Co., the third-largest lender, increased 85 cents to $48.25. Financial shares climbed 1.9 percent as a group today and led the market's advance this week as investors speculated Federal Reserve interest-rate cuts will make banks' lending more profitable and boost the value of mortgage-related assets. The S&P 500 Financials Index gained 8.5 percent this week, the steepest advance in five years.
Writedowns and credit losses following the collapse of the subprime mortgage market have exceeded $148 billion for 32 of the world's largest financial institutions.
Alcoa rose $1.19 to $34.28. The third-largest aluminum company and Aluminum Corp. of China, known as Chinalco, bought a 7.2 billion pound ($14 billion) stake in Rio Tinto. Chinalco opposes BHP's $119 billion proposal to acquire London-based Rio because it would create a company with too much power over prices. Alcoa Chief Executive Officer Alain Belda helped establish Chinalco's listed unit by buying a stake in 2001.
Rio Tinto's U.S.-traded shares gained $34.05 to $441. Freeport-McMoRan Copper & Gold Inc., the second-largest copper producer, rose $3.28 to $92.10. U.S. Steel Corp. increased $5.25 to $107.21.
Altera Corp. led gains in chipmakers after the world's second-biggest maker of programmable semiconductors said sales may rise as much as 2 percent this quarter, exceeding analysts' expectations. Altera shares added $2.53 to $19.42. Intel Corp., the world's biggest chipmaker, gained 67 cents to $21.77. Nvidia Corp., a maker of computer-graphics chips, increased $2.27 to $26.86.
Motorola Inc. added $1.19 to $12.69. Chief Executive Officer Greg Brown said the company, which has lost mobile-phone market share to all of its major rivals, is exploring its options, including a possible separation of its money-losing handset unit.
The Labor Department said payrolls shrunk by 17,000 last month. None of the 80 economists surveyed by Bloomberg had predicted a decline in jobs in January. The report also showed payrolls rose by 82,000 in December, more than initially projected. The jobless rate declined to 4.9 percent in January from a two-year high of 5 percent the month before.
``It was a pretty negative report,'' said John Davidson, who helps oversee more than $11.5 billion as president of PartnerRe Asset Management in Greenwich, Connecticut. ``It reinforces the prospect of a recession and is another indication that the slowdown is housing has expanded way beyond construction.''
Google lost $48.40 to $515.90. Fourth-quarter profit and revenue missed analysts' estimates on slower advertising sales. Google also received less money than expected from ad deals with social-networking sites such as News Corp.'s MySpace. Google shares have dropped 25 percent this year after climbing 50 percent in 2007.
Crude oil declined more than $2 a barrel and prices for natural gas and gasoline retreated on concern the weakening U.S. job market will reduce fuel demand in the world's biggest oil consumer.
Exxon Mobil Corp. and Chevron Corp. fell even after the two biggest U.S. oil companies set all-time highs for full-year profit. Exxon slipped 45 cents to $85.95. Chevron lost 76 cents to $82.49.
Home Depot Inc. and Lowe's Cos. fell after Citigroup analysts lowered their earnings estimates for this year and next because of the U.S. housing slump. Home Depot, the world's largest home-improvement retailer, lost 19 cents to $30.45. Lowe's, the second-largest, declined 88 cents to $25.55.
Gains this week were stoked by the Fed's second interest- rate cut this year. The central bank also signaled willingness to reduce borrowing costs again to prevent a U.S. recession.
Traders see a 70 percent chance the Fed will lower its target for the overnight lending rate between banks by 0.5 percentage point to 2.5 percent by its March 18 policy meeting, according to Fed funds futures. That compares with no chance a week ago. The rest of the bets are for a quarter-point reduction.
Europe's Stoxx 600 added 1.9 percent. The measure last month declined 12 percent, the biggest drop since data for the gauge began in 1987, on concern the U.S. may slip into recession.
The MSCI Asia Pacific Index added 1.1 percent today. The measure fell 0.5 percent this week, its fifth week of declines and the longest losing streak since August 2004. Hong Kong's Hang Seng Index climbed 2.9 percent.