By Eric Martin
Oct. 9 (Bloomberg) -- U.S. stock indexes rallied to records for the second time this month after minutes from the Federal Reserve allayed investor concern that the U.S. economy is heading for a recession.
Yum! Brands Inc., the owner of the Pizza Hut and Taco Bell chains, climbed to an all-time high after earnings topped analysts' estimates. Molson Coors Brewing Co., the third-largest U.S. brewer, rose to a record on its plan to combine U.S. operations with SABMiller Plc. Alcoa Inc., the first member of the Dow Jones Industrial Average to release third-quarter profit, gained before posting earnings that trailed analysts' estimates after the market closed.
The Dow average and Standard & Poor's 500 Index advanced to all-time highs after minutes showed Fed members avoided language that may have suggested the U.S. economy will contract. Policy makers backed a decision to cut the benchmark lending rate by half a percentage point at the Sept. 18 meeting and said a decline in inflation will probably be sustained.
The S&P 500 Index added 12.57, or 0.8 percent, to 1,565.15. The Dow increased 120.8, or 0.9 percent, to 14,164.53. The Nasdaq Composite Index rose 16.54, or 0.6 percent, to 2,803.91.
``The stock market is relieved that the Fed isn't seeing any broad-based weakness in the economy,'' said John Kattar, who oversees $1.9 billion as chief investment officer at Eastern Investment Advisors in Boston. ``There was fear in the equity market that the Fed was seeing something that we, the market, didn't see. The minutes go a long way to displacing that.''
Yum! Brands
Yum jumped $1.82 to $38.11. Third-quarter profit climbed 17 percent on higher China sales and Yum said it plans to buy back up to $4 billion of stock over the next two years. Full-year profit will be $1.65 a share, higher than the $1.63 a share Yum previously forecast. Analysts surveyed by Bloomberg had estimated $1.64.
Mergers and acquisitions contributed to the market's advance. SABMiller, the world's third-largest brewer, agreed to combine its U.S. operations with Molson Coors to catch up with Anheuser-Busch Cos. The joint venture is expected to save $500 million a year. Molson added $5.32, or 10 percent, to $56.15 for the steepest advance in the S&P 500.
In other deals, AT&T Inc., the largest U.S. phone company, agreed to buy airwaves from Aloha Partners LP for about $2.5 billion so customers can access video and send text messages more quickly. AT&T added 5 cents to $41.98. Kohlberg Kravis Roberts & Co. agreed to buy Turkish freight company U.N. Ro-Ro Isletmeleri AS in a transaction worth $1.3 billion, Turkey's biggest private- equity acquisition.
Alcoa shares added $1.42, or 3.7 percent, to $39.72. After financial markets closed, the world's second-largest aluminum maker said net income climbed 3.4 percent to $555 million, or 63 cents a share. Profit excluding items trailed analysts' estimates by 1 cent. Its shares were unchanged in extended trading.
Slowing Earnings Growth
Analysts estimate earnings at S&P 500 companies rose an average 0.7 percent last quarter, according to Bloomberg data, down from a projection of 3.7 percent at the beginning of September.
``Earnings are going to be almost flat, but this echoes what we saw in the last business cycle,'' said Jeffrey Kleintop, who helps oversee about $163 billion as chief investment strategist at LPL Financial Group in Boston. ``Profit slowed from 1996 to 1998, and yet stocks did very well because investors looked through that to the resumption of growth on the other side.''
Stocks also rallied after Fed Bank of St. Louis President William Poole said turmoil in financial markets is showing signs of easing, though continued weakness in housing and credit markets may hurt economic growth.
'Appear to be Stabilizing'
``Financial markets appear to be stabilizing, but they have not returned to normal and are still fragile,'' Poole said in a speech in St. Louis.
Bonds fell after the Fed minutes were published. The yield on the benchmark 10-year Treasury note rose almost 2 basis points to 4.65 percent. A basis point is 0.01 percentage point.
A measure of brokerage firms in the S&P 500 climbed to a 12- week high, gaining 1.1 percent. Goldman Sachs Group Inc., the world's largest securities firm, surged $12.24, or 5.4 percent, to a record $239.20. Morgan Stanley, the second biggest, added $1.15 to $69.09.
Google Inc. advanced $5.57 to $615.19. The shares may climb to $714, according to Lehman Brothers Holdings Inc., which said the owner of the most popular search engine may introduce a mobile phone as early as February. The Google phone may be ``simple,'' ``low-priced'' and designed to run software over the Internet. Banc of America Securities LLC raised its price estimate for Google by 8.1 percent to $670.
Microsoft Corp., the world's biggest software maker, added 26 cents to $30.10 after Goldman said rising demand for the ``Halo 3'' video game will boost profits this quarter.
Commodity Producers Rebound
Energy companies gained 1.8 percent, contributing the most to the S&P 500's advance out of 10 industries. Oil for November delivery rose 1.6 percent to $80.26 a barrel as the dollar declined against the euro, enhancing the appeal of commodities as an investment.
Exxon Mobil Corp., the world's largest publicly traded oil company, added $1.99 to $92.67. Chevron Corp., the second biggest, gained $1.22 to $92.80.
Mining companies also rebounded as commodity prices climbed. Freeport-McMoRan Copper & Gold Inc., the second-largest copper produce, climbed $4.93 to $113.06. Copper rose for the first time in four sessions on speculation demand from China will strengthen, while gold and silver prices also advanced.
About five stocks gained for every two that fell on the New York Stock Exchange. Some 1.2 billion shares changed hands on the Big Board, 27 percent less than the three-month daily average.
Retailers Fall
Sears Holdings Corp., the largest U.S. department-store chain, slid $5.12, or 3.4 percent, to $145.88. The S&P 500 Retailing Index retreated 0.4 percent and was the biggest drag on the overall index among 24 industries. A survey of U.S. retailers showed stores open at least 12 months gained 2 percent in September from a year earlier, the smallest rise since same-store sales fell 1.9 percent in April. The International Council of Shopping Centers and UBS Securities LLC said warm weather hurt sales of cold-weather clothing.
Microchip Technology Inc. fell $4.64, or 13 percent, to $31.98, the biggest decline in the S&P 500. The maker of microcontrollers and analog chips reported fiscal second-quarter earnings that missed analysts' estimates after demand from consumers in the U.S. and Asia was weaker than expected.
Bull Market Anniversary
Today marked the five-year anniversary of the current bull market in U.S. stocks. The S&P 500 has advanced four straight years and almost doubled since its nadir on Oct. 9, 2002. Companies in the index posted 20 straight quarters of operating profit growth of at least 10 percent, making this the only five- year U.S. stock rally since 1945 when price-to-earnings ratios contracted, according to Bespoke Investment Group LLC.
The S&P 500's advance may continue into 2008, if history is any guide. The index has climbed an average of 10.7 percent in the year following a five-year bull market, according to Bespoke.
The Russell 2000 Index, a benchmark for companies with a median market value of $681 million, today gained 0.7 percent to 845.72. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.8 percent to 15,806.69. Based on its advance, the value of stocks increased by $158 billion.
*T Alcoa Inc. (AA US) AT&T Inc. (T US) Chevron Corp. (CVX US) Exxon Mobil Corp. (XOM US) Freeport-McMoRan Copper & Gold Inc. (FCX US) Goldman Sachs Group Inc. (GS US) Google Inc. (GOOG US) Microchip Technology Inc. (MCHP US) Microsoft Corp. (MSFT US) Molson Coors Brewing Co. (TAP US) Morgan Stanley (MS US) Sears Holdings Corp. (SHLD US) Yum! Brands Inc. (YUM US) *T
Last Updated: October 9, 2007 17:47 EDT
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