Friday, September 5, 2008

U.S. Stocks Advance as Rally in Banks Overshadows Drop in Jobs

By Lynn Thomasson

Sept. 5 (Bloomberg) -- U.S. stocks gained, paring the worst weekly loss for the Standard & Poor's 500 Index since May, on speculation Lehman Brothers Holdings Inc. will raise capital and investor Barton Biggs' prediction the market is near a bottom.

Lehman rallied 6.8 percent on a Reuters report the securities firm may sell assets to Blackstone Group LP and Kohlberg Kravis Roberts & Co. Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. climbed more than 4 percent as banks also benefited from growing expectations the Federal Reserve will hold off raising interest rates.

``We're probably somewhere pretty close to a bottom, at least an intermediate-term bottom, from which we can mount a fairly powerful rally,'' Biggs, who runs the hedge fund Traxis Partners LLC, told Bloomberg Television.

Bank gains overpowered earlier declines of more than 1 percent in the S&P 500 and Dow Jones Industrial Average following a jump in the unemployment rate to a five-year high. The S&P 500 added 5.48 points, or 0.4 percent, to 1,242.31. The Dow rose 32.73, or 0.3 percent, to 11,220.96. The Nasdaq Composite Index slipped 3.16 to 2,255.88. About six stocks rose for every five that fell on the New York Stock Exchange.

Stocks tumbled in the morning after the government report showing an unemployment rate of 6.1 percent added to concern that the worst housing slump since the Great Depression and more than $500 billion in credit losses and writedowns at global banks are dragging the nation into a recession.

The S&P 500 pared its weekly loss to 3.2 percent and the Dow reduced its weekly retreat to 2.8 percent. The MSCI World Index tumbled 5.8 percent in the week, its steepest drop since the first week of trading after the September 2001 terrorist attacks.

Bank of America gained 5.3 percent to $32.23. Citigroup added 4.2 percent to $19.07. JPMorgan increased 4.5 percent to $39.60.

Lehman Rally

Lehman rose for the seventh time in eight trading session, adding 6.8 percent to $16.20. Blackstone Kohlberg Kravis Roberts may buy some of the company's assets, including real-estate holdings and part of the asset-management unit, Reuters reported, citing unidentified sources familiar with the situation. Lehman's real-estate unit may be worth about $5 billion, the news agency said. Randy Whitestone, a Lehman spokesman, declined to comment.

Lehman rose to its highest level of the day after financial commentator James Cramer said on CNBC that the stock is a ``screaming buy'' whose business is unlikely to worsen.

Financial shares climbed 3.2 percent, the most among 10 S&P 500 industries. Fannie Mae, the largest U.S. mortgage-finance company, added 9.7 percent to $7.04. Wachovia Corp., the fourth- largest U.S. bank, increased 7.9 percent to $16.75.

The gain in banks came even as foreclosures rose above 1 percent in the second-quarter for the first time since the Mortgage Bankers Association began its loan survey 29 years ago, as people walked away from homes they couldn't refinance or sell.

`Real Opportunity'

``The headlines are screaming adversity, but if you look below it all you'll see real opportunity,'' said Hans Olsen, who helps oversee $120 billion as chief investment officer of JPMorgan Private Wealth Management in New York.

Mining companies and chemical producers in the S&P 500 added 1.1 percent. Morgan Stanley analysts called recent declines in fertilizer stocks ``unfounded'' and predicted the group would see the highest earnings in 2011.

Monsanto Co. increased 3.4 percent to $107.19. Credit Suisse Group AG told investors to buy shares of the world's biggest seed producer. CF Industries Holdings Inc., the maker of nitrogen and phosphate fertilizers, rose the most among raw-material producers in the S&P 500 with a 6.3 percent gain to $131.20.

M&A Speculation

SanDisk Corp. had the biggest gain in more than eight years, soaring 31 percent to $17.64. Samsung Electronics Co. said it may buy the memory-card maker in what would be the South Korean company's biggest acquisition. Samsung, the world's second- largest chipmaker after Intel Corp., said it's considering various options, including an acquisition.

UST Inc. added 25 percent to $67.55. Altria Group Inc., the largest U.S. cigarette maker, is in talks to buy the nation's biggest snuff producer for more than $10 billion, the New York Times reported, citing people with knowledge of the discussions who weren't identified.

Exxon Mobil Corp., Chevron Corp. and ConocoPhillips fell as oil futures sank to a five-month low of $106.23 a barrel in New York. Energy producers in the benchmark index slumped 0.5 percent for a sixth straight retreat, the longest period of declines since 2002.

Utility stocks dropped the most among 10 S&P industries after Sanford C. Bernstein and Atlantic Equities analysts cut profit estimates for Exelon Corp., the largest U.S. owner of nuclear-power plants. The company, which lowered its forecast yesterday, lost 8 percent to $64.97 for the steepest retreat since 2001.

Europe, Asia

Stocks in Europe and Asia fell today on concern weakening economic growth will curb earnings at semiconductor makers while credit-related losses at banks increase.

``We're clearly in a bear market,'' Simon Moss, who manages the equivalent of $4.1 billion as investment director of U.S. equities at Scottish Widows Investment Partnership in Edinburgh, said in a Bloomberg Television interview. ``There is no doubt the economy is slowing.''

The employment report spurred investors to increase bets the Federal Reserve will hold interest rates steady for the rest of the year. Odds policy makers will leave the target rate for overnight loans between banks unchanged through January rose to 79 percent from 63 percent yesterday, futures trading shows.

The average price-earnings multiple of the S&P 500 has declined more than 5 percent from a five-year high of 26.2 on Aug. 15. The index is trading for 24.98 times profits in the last 12 months, or 14.8 times analysts' earnings estimates.

Companies in the S&P 500 are forecast to report profits in the fourth quarter that are 42 percent higher than a year ago, the biggest increase ever. Financial company earnings are projected to rise more almost five-fold, while income at mining and chemical companies may increase 35 percent.

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