By Lynn Thomasson
July 22 (Bloomberg) -- U.S. stocks rallied, pushing the Dow Jones Industrial Average up 127 points in the last hour, after Deutsche Bank AG said financial companies are overcoming credit losses and a drop in oil stoked a record gain in airlines.
Wachovia Corp., Bank of America Corp. and SunTrust Banks Inc. helped lenders extend their rebound from last week's nine- year low to 28 percent after Deutsche Bank analyst Mike Mayo said bank losses haven't spread as ``much as feared.'' UAL Corp., parent of United Airlines, surged the most since emerging from bankruptcy in 2006 as oil slid to a six-week low and the company said it will cut costs by eliminating 7,000 jobs.
The S&P 500 gained 17 points, or 1.4 percent, to 1,277 and has climbed 5.1 percent from an almost three-year low on July 15. The Dow Jones Industrial Average added 135.16 points, or 1.2 percent, to 11,602.5. The Nasdaq Composite Index increased 24.43 points, or 1.1 percent, to 2,303.96. Three stocks rose for each that fell on the New York Stock Exchange.
``After two months of nothing but bad news, we just got a couple rays of lasting sunshine to trigger some buying,'' said Frederic Dickson, who helps manage $23 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.
The report from Deutsche Bank and Wachovia's plan to cut costs helped the market add to last week's gains spurred by results at Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. The benchmark for U.S. equities is still 18 percent below its October record as profits slump for a fourth straight quarter, the longest stretch of declines since 2002.
U.S. Treasuries fell, sending the yield on the two-year note up 0.13 percentage point to 2.72 percent, and the dollar climbed the most against the euro in more than two weeks.
Wachovia climbed 27 percent to $16.79. Chief Executive Officer Robert Steel, the former Treasury Undersecretary hired two weeks ago, told investors on a conference call that a sale of stock is ``not on the plan.'' Steel plans to cut the $2 billion in expenses by the end of next year. Earlier, the shares tumbled as much as 12 percent after the bank posted a record loss and reduced its dividend for the second time in three months.
Financial shares extended gains after Deutsche Bank's Mayo said he's less ``negative'' on bank earnings and predicted Wachovia will increase earnings in the coming quarters.
The comments from Wachovia and Mayo helped financials reverse a decline of as much as 3.8 percent to an advance of 6.6 percent. The Chicago Board Options Exchange Volatility Index, which gauges the cost of using options as insurance against declines in the S&P 500, fell 8.1 percent to 21.18, the lowest since June 25. The so-called VIX rose as much as 4.5 percent as trading began.
``We really believe volatility is here to stay for the year,'' said Frank Ingarra, the assistant portfolio manager at Hennessy Advisors Inc., which oversees $1.1 billion in Novato, California. ``If you've got a long-term view, there are some great buying opportunities, but you've got to have a strong stomach.''
SunTrust climbed 16 percent to $39.66, the highest price since Jun. 17. The largest bank based in Georgia reported per- share earnings that exceeded the average analyst estimate by 19 percent and said it won't cut its dividend and doesn't need to raise capital.
Bank of America increased 13 percent to $32.35 and contributed the most to the S&P 500's advance. The S&P 500 Financials Index added 6.6 percent, extending its gain since July 15 to 28 percent.
Washington Mutual Inc. added 34 cents to $5.82. After the close, the biggest U.S. savings and loan reported a $3.3 billion quarterly loss and forecast $1 billion of annual costs savings mainly from closing wholesale and home loan centers. In after hours trading, the stock gained 61 cents, or 10 percent, to $6.43 as of 4:32 p.m. in New York.
Caterpillar added 2.4 percent to $74.98. The world's largest maker of earthmoving equipment reported second-quarter earnings of $1.74 a share, exceeding the average analyst estimate from a Bloomberg survey by 13 percent as demand from Asia and the Middle East drove sales.
Crude oil for August delivery fell $3.09 to $127.95 a barrel today and touched $125.63, the lowest since June 5, on forecasts that a tropical storm in the Gulf of Mexico will miss oil fields and refineries.
The Amex Airline Index rallied 22 percent, its biggest gain ever, and pared its 2008 retreat to 39 percent. The group also climbed after JetBlue Airways Corp. and US Airways Group Inc. beat analysts' second-quarter estimates and said they will cut capacity.
UAL rose 69 percent to $8.41. JetBlue added 16 percent to $4.50. US Airways jumped 59 percent to $4.27.
UnitedHealth Group Inc. rallied 10 percent to $26.21 for the steepest gain since January 2000 after adjusted earnings topped analysts' estimates. The largest U.S. medical insurer's results pushed managed-care companies in the S&P 500 to their biggest rally in a decade.
WellPoint Inc., the second-largest U.S. health insurer, gained 6.8 percent to $48.75 for the biggest climb since April. Coventry Health Care Inc. rose the most since April 2006, adding 8.5 percent to $31.91.
Apple lost 2.6 percent to $162.02. Fourth-quarter profit will be $1 a share as sales climb to $7.8 billion, the company said. That compares with the average analyst estimate of $1.24 a share in earnings and $8.3 billion in sales.
American Express Co. fell the most since Jan. 11, declining 7.1 percent to $37.99 after it said second-quarter profit fell 37 percent on worse-than-expected consumer defaults and Chief Executive Officer Kenneth Chenault withdrew his 2008 forecast.
American Express, Capital One Financial Corp. and Discover Financial Services shares have dropped by more than 40 percent in the past year amid concern the lenders underestimated the depth of the U.S. slowdown.
Except for Canada, all of the 23 developed markets in the MSCI World Index experienced bear market plunges of at least 20 percent this year as global credit losses exceed $452 billion and oil trades near a record.
Financial shares led the bear-market retreat as credit losses and asset writedowns sparked by the subprime-mortgage market's collapse topped $460 billion worldwide. Technology, industrial and consumer companies also dropped after record oil prices and the deepening U.S. housing slump prompted businesses and consumers to pare spending