Thursday, March 13, 2008

U.S. Stocks Gain After S&P Predicts End to Subprime Writedowns

By Eric Martin

March 13 (Bloomberg) -- U.S. stocks rose for the second day this week after Standard & Poor's predicted an end to banks' subprime mortgage writedowns and gold surged above $1,000 an ounce, sparking a rally in mining shares.

Newmont Mining Corp., the world's second-largest gold producer, climbed to the highest since January after bullion advanced to a record. Fannie Mae, the biggest provider of money for U.S. mortgages, helped financial shares recover from a 4 percent decline after S&P said banks have already disclosed the majority of their writedowns.

The S&P 500 added 6.71 points, or 0.5 percent, to 1,315.48 after dropping as much as 2 percent. The Dow Jones Industrial Average climbed 35.5, or 0.3 percent, to 12,145.74. The Nasdaq Composite Index rallied 19.74, or 0.9 percent, to 2,263.61. Seven stocks rose for every three that fell on the New York Stock Exchange.

``That slight piece of positive news from Standard & Poor's helped the market gather footing,'' said Eric Green, who helps manage $5 billion at Penn Capital Management in Cherry Hill, New Jersey. ``The bears couldn't press it anymore.''

Stocks tumbled in the morning after the $16.6 billion default at a Carlyle Group bond fund added to turbulence in financial markets, and an unexpected drop in retail sales signaled the economy has slid into a recession.

Nine of 10 industry groups in the S&P 500 advanced, after all 10 opened the day lower. Raw-materials producers gained the most, climbing 2 percent as a group. Gold rose above $1,000 an ounce for the first time as mounting credit-market losses spurred demand for bullion as a haven from the sagging dollar.

Newmont, Boeing

Newmont gained $2.40, or 4.7 percent, to $53.78. Barrick Gold Corp., the world's largest gold producer, rose $2.41, or 4.8 percent, to $53.05.

Boeing Co. had the steepest gain in the Dow average, rising $1.73, or 2.4 percent, to $74.18. The world's second-largest commercial-aircraft maker won orders for 85 airplanes valued at about $11.2 billion at published prices, including 35 of its twice-delayed 787 Dreamliner.

Energy producers contributed the most to the S&P 500's advance, rising 1.4 percent as a group, after oil climbed to a record and natural gas advanced to the highest in more than two years. Exxon Mobil Corp., the largest U.S. oil company, gained $1.08, or 1.3 percent, to $87.05. Chesapeake Energy Corp., the second-biggest U.S. independent natural gas producer, increased $2.32, or 5 percent, to $49.

The dollar slid to a 12-year low against the yen and record low versus the euro after the Carlyle fund's default. European shares fell for the first time in three days and Asian stocks lost the most in almost a week.

End 'in Sight'

Fannie Mae climbed $1.93, or 9.2 percent, to $22.97. Smaller rival Freddie Mac added $1.51 to $21.30. Washington Mutual Inc., the largest U.S. savings and loan, climbed 49 cents to $12.13.

S&P increased its forecast for writedowns from subprime- mortgage securities to $285 billion. Still, the ratings firm said the end of writedowns is ``now in sight.'' S&P had previously estimated $265 billion. It raised its estimate because of increased loss assumptions for collateralized debt obligations. The bulk of writedowns may have already been taken, S&P said.

``As long-term investors, your best values come when everyone is panicking,'' Michael Williams, who helps oversee $2.8 billion as managing director of Genesis Asset Management in New York, said in an interview with Bloomberg Television. ``We are bullish about the value that's being created.''

Health Insurers Rebound

Health insurance stocks bounced back today, led by Humana Inc. and UnitedHealth Group Inc., ending a selloff after analysts upgraded the companies. Investors had wiped out $24 billion in value from the two companies and WellPoint Inc. before today. Humana and WellPoint ignited the selloff this week by lowering their earnings forecasts.

``Now that the shares reflect doom and gloom, we believe that if UnitedHealth succeeds in adding membership in the back end of 2008, it would be a positive surprise and one that likely takes the shares higher,'' said analyst Sheryl Skolnick of CRT Capital Group in Stamford, Connecticut, in a note today to clients.

Humana climbed $4.10, or 10 percent, to $44.98 for the top gain in the S&P 500. UnitedHealth rose $1.60 to $38.28.

Retail Sales

Retailers rose even after the Commerce Department said sales unexpectedly fell in February, dropping 0.6 percent. Economists surveyed by Bloomberg had expected a gain of 0.2 percent.

Tiffany & Co., the world's second-largest luxury-jewelry retailer, rose $1.52, or 4.1 percent, to $38.77. Home Depot Inc., the biggest home-improvement chain, added 35 cents to $26.48.

Stocks also gained after House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd unveiled plans to increase government efforts to prevent foreclosures amid the worst housing slump in a quarter century.

Home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling prices, RealtyTrac Inc., a seller of foreclosure data, said.

Bear Stearns Cos., the second-largest underwriter of mortgage bonds, lost $4.58, or 7.4 percent, to $57 on concern the company lacks sufficient access to capital. Traders at other firms have been reluctant to engage in long-term transactions such as credit-default swaps with Bear Stearns, the Wall Street Journal reported. Chief Executive Officer Alan Schwartz this week denied reports the firm's access to capital is at risk.

AIG, Carlyle

American International Group Inc. tumbled $1.17 to $42.48 on Morgan Stanley's prediction of wider losses from credit default swaps at the world's largest insurance company. The shares were downgraded to ``equal-weight'' from ``overweight'' at Morgan Stanley. Analyst Nigel Dally wrote in a note to clients that losses related to credit-default swaps may total $3 billion.

Financial shares opened the day lower after Carlyle's fund, which received more than $400 million in margin calls since March 5, said it was unable to reach an agreement with lenders and that they were seizing its assets.

The fund used loans from 12 banks to buy about $22 billion of AAA-rated mortgage debt issued by Fannie Mae and Freddie Mac. In the past month, at least a dozen funds have closed, sold assets or sought fresh capital as banks tightened lending standards.

The publicly traded fund, Carlyle Capital Corp., slumped 88 percent to 35 cents in Amsterdam.

Extra Collateral

Stung by writedowns from the subprime collapse, banks are asking for extra collateral on even the safest forms of debt. The spread between 30-year agency mortgage bonds and 10-year U.S. Treasuries has widened this month to the highest since 1986, according to Bloomberg data.

Traders have increased bets the Fed will cut its benchmark rate by 0.75 percentage point by its March 18 meeting to unfreeze credit markets, according to futures trading. They are now pricing in 86 percent odds the central bank will cut the rate to the lowest since 2005, up from 72 percent odds yesterday and 74 percent odds last week. The rest of the bets are for a half-point cut in the rate, which is currently 3 percent.

Lending Regulation

Treasury Secretary Henry Paulson, Fed Chairman Ben S. Bernanke and other U.S. regulators proposed greater scrutiny of lending in a report on lessons from the mortgage crisis.

``Regulators have a role to play in every change,'' Paulson said in excerpts of a speech on a report by the President's Working Group on Financial Markets. ``They will issue new rules and seek regulatory authorities as needed, evaluate progress, provide guidance and enforce laws, to ensure that implementation follows recommendation.''

The number of Americans collecting unemployment benefits rose to a 2 1/2-year high, a sign the slowing economy is restraining hiring. The number of people continuing to receive jobless benefits rose to 2.835 million in the week ended March 1, the highest since September 2005, from 2.828 million the prior week, the Labor Department said.

In a separate report, the government said prices of goods imported into the U.S. rose less than forecast in February. The 0.2 percent increase in the import price index followed a revised 1.6 percent gain the prior month.

The Russell 2000 Index, a benchmark for companies with a median market value 22 times smaller than the S&P 500, climbed 1.9 percent. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.7 percent to 13,266.85. Based on its advance, the value of stocks increased by $109 billion.

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