Wednesday, August 27, 2008

U.S. Stocks Gain on Durable Goods; Fannie Mae, Freddie Mac Rise

By Eric Martin

Aug. 27 (Bloomberg) -- U.S. stocks rose for a second day after orders for durable goods unexpectedly advanced in July and analysts said new investments by Fannie Mae and Freddie Mac will boost their earnings.

Bank of America Corp. and American Express Co. each climbed more than 2 percent after the Commerce Department report bolstered expectations that the economy is recovering. Fannie Mae and Freddie Mac rallied more than 15 percent each after the largest U.S. mortgage finance companies also sold $3 billion in debt at yields which suggest they won't need a government bailout. Oil's advance of more than $2 a barrel pushed up 38 of 39 energy producers in the Standard & Poor's 500 Index.

The S&P 500 added 10.15 points, or 0.8 percent, to 1,281.66, with 9 of its 10 main industry groups gaining. The Dow Jones Industrial Average climbed 89.64, or 0.8 percent, to 11,502.51. The Nasdaq Composite Index increased 20.49 to 2,382.46. Four stocks advanced for each that fell on the New York Stock Exchange.

``As long as businesses are optimistic, we have a good chance of pulling out of this weak period in the economy in fairly short order,'' said Peter Jankovskis, who helps manage $1.5 billion at OakBrook Investments in Lisle, Illinois. The durable goods data ``was a very strong report, and the market has acted appropriately.''

Durable Goods Growth

The 1.3 percent gain in durable goods orders defied economist forecasts for an unchanged reading in July. Stock futures fell before the Commerce Department report as a third day of gains in oil spurred concern that crude's rebound from a more than 20 percent tumble since July will threaten profits at consumer, transportation and technology companies.

Trading on the NYSE was the slowest for a full session since December 2006, with about 820 million shares changing hands. Volume since the start of last week has been more than one-third lower than the year-to-date average.

Fannie Mae added 86 cents to $6.48, while Freddie Mac gained 78 cents, or 20 percent, to $4.75. The mortgage-finance companies may get the biggest profits on new investments since at least 1998. The current-coupon mortgage bonds Fannie and Freddie buy yield about 40 basis points, or 0.40 percentage point, more than what they pay to borrow by selling benchmark bonds, Citigroup Inc. said in a report. The difference exceeded 20 basis points only twice in the 10 years through 2007 -- in 1998 and 2003.

The two companies today sold short-term debt at yields relative to benchmark rates that were higher than in sales earlier this month, yet below levels seen a year ago, data compiled by Bloomberg show. Investors have been watching the debt sales for any ``tell-tale'' signs that the companies can't fund themselves, UBS AG analysts in New York wrote in a report.

Fannie, which tumbled 37 percent last week on concern a government bailout will wipe out shareholders, has risen for five straight days for its longest streak of gains in a year.

`Great Confidence'

Merrill Lynch & Co. gained $1.17, or 4.9 percent, to $25.27. Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, said it has ``great confidence'' in Merrill's Chief Executive Officer John Thain and plans to raise its stake.

Temasek, the U.S. bank's biggest shareholder, received U.S. antitrust approval yesterday to raise its stake to between 13 percent and 14 percent.

`Still Opportunities'

``Once we get through this credit crisis and rebuild confidence, things should get better,'' Kelli Hill, a portfolio manager at Ashfield Capital Partners in San Francisco, which manages $4 billion, said in an interview with Bloomberg Television. ``There are still opportunities within the market.''

Goldman Sachs Group Inc. dropped 43 cents to $155.48. Morgan Stanley analyst Patrick Pinschmidt cut his estimate for Goldman's third-quarter earnings to $1.65 a share from his earlier $3 estimate. The New York-based bank may mark down so-called principal investments by $525 million, he said in a note to clients.

Exxon Mobil Corp. rose 52 cents to $80.47, while Chevron Corp. climbed 83 cents to $86.62. Crude oil, natural gas and gasoline rose on speculation Tropical Storm Gustav will become the most damaging hurricane since Katrina as it moves toward production platforms in the Gulf of Mexico.

Valero Energy Corp., Tesoro Corp. and Sunoco Inc., the biggest U.S. petroleum refiners, rose more than 4 percent and made up the three top advances in the S&P 500 Energy Index. The gains came as profit margins on processing oil into gasoline and heating oil, the so-called crack spread, advanced 6.8 percent, sending the measure to its biggest two-day increase since March.

Refiners Rally

Valero increased $1.42 to $35.02. Tesoro climbed $1.84 to $18.41. Sunoco jumped $1.97 to $42.23.

Amylin Pharmaceuticals Inc. plunged $6.76, or 25 percent, to $20.48 after four more patients taking the diabetes drug Byetta died from pancreatitis. Byetta, available in the U.S. since June 2005, is Amylin's leading product, with global sales that rose 25 percent in the second quarter to $194.7 million from a year earlier.

No definite relationship between Byetta and the additional deaths has been proved, and the Food and Drug Administration was aware of them when it made its announcement last week, Amylin Chief Executive Officer Dan Bradbury said by telephone yesterday.

Health-care companies had the only decline among 10 S&P 500 industries, falling 0.1 percent. Pfizer and Bristol-Myers Squibb Co. dropped after saying their experimental blood thinner apixaban worked no better than an older pill in a study, causing them to delay seeking U.S. regulatory approval. Bristol-Myers dropped 46 cents, or 2.1 percent, to $21.52 and Pfizer declined 20 cents, or 1 percent, to $19.08.

`Significant Risks'

U.S. airlines retreated after Citigroup Inc. said demand may weaken and ``significant risks remain'' for the industry as crude oil rebounds.

``U.S. airlines have yet to see a severe consumer downturn despite gloomy economic data,'' analyst Andrew Light wrote in a note.

Investors should sell shares of AMR Corp., parent of American Airlines, the world's largest carrier, because they have more than doubled since falling to a five-year low last month, Light said. AMR declined 2.7 percent to $9.35. UAL Corp., the Chicago-based parent of United Airlines, dropped $1.27, or 11 percent, to $9.88.

The S&P 500 is up 1.1 percent in August after falling in June and July. The benchmark index for U.S. equities has posted only two monthly gains since reaching a record in October and is down almost 13 percent this year.

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