U.S. Stocks Rise, Led by Banks; Wells Fargo, Countrywide Gain

By Elizabeth Stanton


Nov. 30 (Bloomberg) -- U.S. stocks rose, capping the best weekly gain since March, after Federal Reserve Chairman Ben S. Bernanke signaled he may cut interest rates and the Treasury moved closer to a plan to prevent thousands of Americans from losing their homes.

JPMorgan Chase & Co. and Wells Fargo & Co. led financial shares to their biggest weekly rally in four years. Countrywide Financial Corp., the largest U.S. mortgage company, jumped 16 percent and homebuilders climbed the most in seven years on Treasury Secretary Henry Paulson's plan to avert foreclosures. Today's advance limited the worst monthly losses in five years for the Standard & Poor's 500 Index and Dow Jones Industrial Average.

``They're going to try to do a more concerted approach'' to relieve stress in the financial system, said Peter Sorrentino, who helps manage about $6.5 billion at Huntington Asset Management in Cincinnati. ``That's why we've got Paulson as well as Bernanke at the Fed and the administration behind this.''

The S&P 500 advanced 11.42, or 0.8 percent, to 1,481.14. The Dow average increased 59.99, or 0.5 percent, to 13,371.72. The Nasdaq Composite Index slipped 7.17, or 0.3 percent, to 2,660.96, led by Dell Inc.'s 13 percent tumble following earnings that missed analysts' estimates. About nine stocks gained for every five that fell on the New York Stock Exchange.

Weekly Gains

For the week, the S&P 500 added 2.8 percent and the Dow average gained 3 percent, while the Nasdaq rose 2.5 percent. The indexes climbed in the week's final four days after declines on Nov. 26 left them down 10 percent from their Oct. 9 records, marking the usual definition of a market ``correction.''

Bernanke spurred speculation the Fed will cut its benchmark rate by half a percentage point at its Dec. 11 meeting by saying in a speech after the market closed yesterday that the economic outlook has become more uncertain, requiring the central bank to be ``exceptionally alert and flexible.'' A government report today showed incomes and spending rose less in October than economists had forecast, with incomes posting their smallest increase in six months.

``It is telling you that it's likely to cut pretty aggressively over the next six months,'' said Jason Trennert, chief investment strategist at Strategas Research Partners in New York. The federal funds rate target, lowered to 4.5 percent on Oct. 31, may fall to 3.5 percent in six months, he said.

Paulson's Plan

JPMorgan, the third-largest U.S. bank, rose $1.97, or 4.5 percent, to $45.62 for the top gain in the Dow average. Wells Fargo, the second-biggest U.S. mortgage lender, advanced $1.89 to $32.43. Bank of America, the second-largest U.S. bank, increased $1.50 to $46.13. Citigroup Inc., the top U.S. bank, added $1.01 to $33.30.

Paulson is negotiating an agreement with banks to stem a surge in foreclosures by freezing payments on adjustable rate mortgages, or ARMs, to subprime borrowers, according to people familiar with a meeting he led yesterday. Citigroup, Wells Fargo and Washington Mutual Inc. executives attended, said a person present, who spoke on condition of anonymity.

Mortgage lenders, homebuilders and bond insurers were among the biggest gainers in the S&P 500. Countrywide rose $1.52, or 16 percent, to $10.82. DR Horton Inc. led a gauge of homebuilders to an 8.7 percent jump, the steepest advance since December 2000. Ambac Financial Group Inc., the second-largest bond insurer, rose $3.78, or 16 percent, to $27.19.

'Changing the Fundamentals'

``The fact that the government and private banks are looking at freezing ARM readjustments -- clearly that changes the fundamentals,'' said Brett Gallagher, deputy chief investment officer at Julius Baer Investment Management in New York, which oversees $70 billion. He added that it still may not be enough to avert additional reckoning with mortgage losses.

Banks and brokerages also rallied after Credit Suisse raised its recommendation on banks to ``benchmark'' from ``underweight.'' Global economies will avoid a hard landing, strategists including Andrew Garthwaite wrote in note published today.

Financial shares in the S&P 500 climbed 2.9 percent as a group today and 5.6 percent over the past week.

A gauge of 30 retailers in the S&P 500 increased 1.5 percent as crude oil futures dropped 2.6 percent to $88.65 a barrel. Macy's Inc. gained 35 cents to $29.65. Gap added 51 cents to $20.40.

``Fundamentals argue for oil closer to $80, which could be a big and important boost to the equity market,'' said Binky Chadha, chief U.S. equity strategist at Deutsche Bank Securities in New York.

General Motors

General Motors Corp. increased $1.05 to $29.83 on prospects for lower costs after the largest automaker said it plans to boost spending on Chinese-made parts 25 percent a year until 2010.

Yields on three-month Treasury bills rose the most in more than two weeks, increasing 0.20 percentage point to 3.16 percent on reduced demand for the safety of short-term government debt.

Dell, the world's second-largest personal-computer maker, retreated $3.60 to $24.54 for the steepest loss in the S&P 500. Dell, after the market closed yesterday, reported third-quarter profit of 34 cents a share, missing the estimate of 35 cents in a Bloomberg survey of analysts.

Chief Executive Officer Michael Dell said he would boost spending to expand into new countries and retailers. Goldman, Sachs & Co. removed the stock from its ``Americas conviction buy'' list, saying the improvement in the company's performance ``is smaller and more gradual than we had been expecting.''

'Black Cloud'

``You're getting a couple of high-profile tech companies making statements or having company-specific issues, which is putting a black cloud over the sector as a whole,'' said Brian Rauscher, director of portfolio strategy at Brown Brothers Harriman & Co. in New York. The firm oversees $45 billion in client assets.

Research In Motion Ltd. fell $8.26 to $113.82 after a Piper Jaffray & Co. analyst cut his profit estimates for the maker of the BlackBerry e-mail device on concern sales growth may slow.

Bernanke's comments yesterday came after Fed Vice Chairman Donald Kohn acknowledged the threat to spending from reduced access to credit on Nov. 28. The Fed in October said growth and inflation risks were ``roughly'' balanced.

Economy Watch

The 0.2 percent increase in consumer spending was less than the 0.3 percent gain forecast by economists in a Bloomberg News survey. The Commerce Department said incomes also rose 0.2 percent, half the pace forecast by economists and the smallest increase since a decline in April.

A gauge of business activity compiled by the National Association of Purchasing Management-Chicago rose more than forecast in November. The group's business barometer climbed to 52.9 from 49.7 in October. Readings greater than 50 signal growth. The median forecast was for a reading of 50.5.

Concern the U.S. may slip into a recession helped send the Dow average to a 4 percent drop in November, while the S&P 500 lost 4.4 percent and the Nasdaq Composite retreated 6.9 percent.

The Russell 2000 Index, a benchmark for companies with a median market value of $601 million, gained 0.2 percent to 767.77. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.7 percent to 14,932.65. Based on its advance, the value of stocks increased by $137 billion.