By Elizabeth Stanton
March 24 (Bloomberg) -- U.S. stocks rallied to the highest level this month as JPMorgan Chase & Co.'s increased bid for Bear Stearns Cos. and a gain in home sales boosted speculation the economy will recover from $200 billion in credit losses.
Bear Stearns, which almost collapsed before the Federal Reserve helped broker a takeover, nearly doubled after JPMorgan raised its offer to about $10 a share from $2.52. Tiffany & Co., the second-largest luxury jewelry retailer, climbed the most in more than two years on better-than-forecast earnings. Monsanto Co., the biggest seed producer, posted its steepest advance since January after UBS AG advised buying the shares.
The Standard & Poor's 500 Index added 20.37 points, or 1.5 percent, to 1,349.88 as nine of its 10 industry groups advanced. The Dow Jones Industrial Average increased 187.32, or 1.5 percent, to 12,548.64. The Nasdaq Composite Index gained 68.64, or 3 percent, to 2,326.75. Nine stocks rose for every two that fell on the New York Stock Exchange.
``It appears that people are interested in buying stocks every time there's just a whiff of good news,'' John Carey, who manages $13 billion at Pioneer Investments in Boston, said in an interview with Bloomberg Radio. ``We're starting from a fairly modest level of valuations in this downturn and so perhaps people are right in suggesting that downside is limited.''
The S&P 500 trimmed its loss for the year to 8.1 percent and posted its first back-to-back gains of the month. The market extended its rally after an industry report showed existing home sales climbed in February for the first time in seven months. Asian shares advanced, led by Taiwan's biggest increase in six weeks. All major European markets were closed for a holiday.
Bonds, Gold Drop
Yields on Treasury securities climbed, the dollar advanced against the yen, and gold fell as traders pared bets on additional interest-rate cuts by the Federal Reserve.
Bear Stearns climbed $5.29, or 89 percent, to $11.25. JPMorgan will exchange stock worth about $10 for each Bear Stearns share, the New York-based firms said in a statement. Under the terms of the deal the two firms struck March 16, the takeover price had been $2.52 a share, based on last week's closing price.
Banks, brokerages and insurance companies in the S&P 500 rose 0.7 percent as a group, extending their advance in the past week to 14 percent. Citigroup Inc., the biggest U.S. bank, contributed the most to the gain, adding 77 cents, or 3.4 percent, to $23.27.
``A lot of market turns tend to happen on watershed events'' such as the takeover of Bear Stearns, said Greg Woodard, a portfolio strategist at Manning & Napier in Fairport, New York, which oversees $18 billion. The increased bid holds out hope for ``a quick culmination,'' rather than ``a long, drawn-out battle with the shareholders.''
$150 Billion in Mortgage Bonds
Financial shares also gained after Federal Home Loan Banks were freed to increase their purchases of mortgage-backed bonds by about $150 billion, the latest in a series of government initiatives to resuscitate lending by financial institutions.
Lehman Brothers Holdings Inc. fell $2.01, or 4.1 percent, to $46.64 after being downgraded to ``perform'' by Oppenheimer & Co.'s Meredith Whitney. Whitney, who correctly predicted Citigroup would cut its dividend this year, cited a ``protracted challenging capital markets environment'' and abandoned her price target for Lehman.
Tiffany rallied $4.05, or 10 percent, to $42.65 after saying ongoing earnings excluding items were $1.27 in the fourth quarter, six cents better than the average analyst estimate in a Bloomberg survey. Fourth-quarter revenue was $1.053 billion, beating the $1.049 billion average estimate.
'Not That Bad Off'
``Tiffany is bringing back to focus that the economy still is not that bad off,'' said Tom Wirth, senior investment officer at Chemung Canal Trust Co. in Elmira, New York, which manages $1.8 billion.
Monsanto climbed $7.13, or 7.3 percent, to $104.26 after UBS analyst Chris Shaw said results from the company's seed and agricultural productivity businesses may help boost the shares to $125 in the next 12 months.
Companies in the S&P 500 traded at 13.82 times estimated profit when the market opened, according to Bloomberg data. Index members last traded at a valuation of less than 14 times historic earnings in October 1990.
Sales of existing homes in the U.S. unexpectedly rose in February, easing concern credit restrictions and falling prices would hurt demand. Purchases increased 2.9 percent to an annual rate of 5.03 million, the National Association of Realtors said. Economists in a survey had forecast a decline of 0.8 percent.
D.R. Horton Inc., the second-largest U.S. homebuilder, climbed $1.02 to $16.70, leading gains in 14 of 15 homebuilders in S&P indexes. The group's 5.2 percent advance extended its climb in the past week to almost 26 percent.
Home-improvement specialists Home Depot Inc. and Lowe's Cos. led retailers in the S&P 500 to a 3.5 percent gain. Home Depot climbed $1.20 to $29.26. Lowe's added $1.06 to $24.29.
CIT Group Inc. surged $3.40, or 35 percent, to $13.03. The commercial finance company that tapped $7.3 billion of emergency credit lines last week climbed after Stifel Nicolaus & Co. said it may be a takeover target.
Walgreen Co. added $1.83 to $38.61. The largest U.S. drugstore chain's second-quarter profit was bigger than analysts estimated because of increased sales of prescription drugs. Walgreen's net income of 69 cents a share beat the average analyst estimate of 67 cents a share in a Bloomberg poll.
Best Buy, HCP
Best Buy Co. rose 86 cents to $43.27. The largest U.S. consumer-electronics retailer, which is gaining market share from Circuit City Stores Inc., is benefiting from growth in sales of video-game software, Barron's reported. Best Buy shares may climb to $52 once investors overcome fears of how the retailer will fare in a recession, Barron's reported, citing unnamed analysts.
HCP Inc. increased $1.37 to $33.11. The largest U.S. health- care real-estate investment trust will replace Commerce Bancorp Inc. in the S&P 500 on March 31, S&P said March 20. Commerce Bancorp added 9 cents to $36.44.
Sirius Satellite Radio Inc. rose 25 cents, or 8.6 percent, to $3.15. Its proposed acquisition of XM Satellite Radio Holdings Inc. to create a single U.S. satellite-radio provider won U.S. antitrust clearance. XM Satellite Radio surged 15 percent to $13.79.
The odds implied by interest-rate futures prices of a half- point rate cut at the Fed's next meeting on April 30 fell to 28 percent from 56 percent. The remaining bets are on a quarter- point cut.
The S&P 500 climbed 3.2 percent last week after the Federal Reserve injected more cash into the banking system and Wall Street's largest securities firms reported earnings that topped estimates.
The Russell 2000 Index, a benchmark for companies with a median market value of $532 million, gained 2.9 percent to 701.28. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1.8 percent to 13,570.78. Based on its advance, the value of stocks increased by $293 billion.