U.S. Stocks Rise, Led by Utility, Energy Shares; Hess Advances

By Eric Martin


Dec. 18 (Bloomberg) -- U.S. stocks climbed for the first time in three days on speculation the European Central Bank's injection of $500 billion into the financial system will help the economy withstand a deteriorating housing market.

General Motors Corp., the biggest automaker, Exelon Corp., the largest operator of U.S. nuclear plants, and Hess Corp., the fifth-biggest energy company, led gains by all 10 Standard & Poor's 500 Index industries. Fannie Mae and Freddie Mac, the two largest providers of funds for home loans, had the biggest and fourth-biggest advances in the gauge.

The S&P 500 gained 9.08, or 0.6 percent, to 1,454.98, bringing its gain for the year to 2.6 percent. The Dow Jones Industrial Average added 65.27, or 0.5 percent, to 13,232.47. The Nasdaq Composite Index increased 21.57, or 0.8 percent, to 2,596.03. About 14 stocks rose for every five that dropped on the New York Stock Exchange.

``The ECB injection is important because liquidity and access to capital is one of the things that's been driving the market for the last few months,'' said Michael Gallipo, who helps manage about $800 million at Citizens Funds in Portsmouth, New Hampshire.

The ECB's record injection helped assuage concern that a slowdown in bank lending will crimp profits and spur a U.S. recession. Profits at S&P 500 members are expected to rise an average of 13.9 percent in 2008, up from an estimated 3 percent this year, according to analysts' forecast compiled by Bloomberg.

Today's gains were limited after Goldman Sachs Group Inc. Chief Financial Officer David Viniar said he is ``cautious about the near-term outlook'' for the world's largest securities firm and the government said building permits fell to a 14-year low.

GM, Utilities

GM added 54 cents to $26.93. The company will begin offering buyouts to about 5,000 factory workers early next year. The offers are part of an effort to lower labor costs and return GM to profitability after it lost $12.5 billion over two years.

Utilities climbed 1.5 percent, the steepest gain among 10 industries in the S&P 500. Exelon led advances after Merrill Lynch & Co. boosted its share-price estimate by 15 percent to $94. Analyst Jonathan Arnold recommended the shares to investors who are seeking safety in power producers amid an economic slowdown. Exelon rose $2.71 to $85.55.

Hess added $5.14 to $89.83. Friedman analyst Eitan Bernstein raised his 2008 crude oil price forecast by 33 percent to $80 a barrel and ``long-term'' estimate by 55 percent to $85 a barrel. Bernstein boosted Hess's share-price forecast by 33 percent to $97.

`Still Spending'

The Organization of Petroleum Exporting Countries is ``aggressively defending high prices'' by managing production as demand from emerging markets keeps rising, Bernstein wrote in a note to investors.

``We're absolutely bullish,'' said David Doll, who helps manage about $2 billion as chief executive officer of Kanaly Trust Co. in Houston. ``We could see a nice rally setting up because the consumer is still spending, earnings guidance is rising and the economy is holding up.''

Adobe Systems Inc. added $1.13 to $42.03. The company issued a forecast that beat analysts' estimates on increased demand for its Creative Suite programs. The stock was upgraded to ``buy'' from ``hold'' at Deutsche Bank AG.

H&R Block Inc. added $1.07 to $18.67. The biggest U.S. tax preparer said it has adequate liquidity because its capital needs are lower than in the previous year. The company has about $200 million in lines of credit and about $250 million of cash, interim Chief Financial Officer Becky Shulman said during a conference call for investors.

Goldman Drops

Goldman fell $7.12, or 3.4 percent, to $201.51, a three- month low. The company said fourth-quarter net income climbed 2 percent to $3.22 billion, or $7.01 a share, topping analysts' estimates. Viniar said a lack of liquidity in world capital markets last month ``has to make us cautious'' about the coming quarters.

Housing starts in the U.S. dropped in November and permits for future construction slid to a 14-year low. Builders started construction on new homes at a 1.187 million annual rate, down a less-than-forecast 3.7 percent from October, the Commerce Department said in Washington. Permits fell 1.5 percent to a 1.152 million pace.

U.S. stocks completed their biggest two-day drop in more than a month yesterday, led by commodity producers, on concern rising lending rates between banks will spur a recession. Borrowing costs fell today after the European Central Bank injected an unprecedented $500 billion into the financial system to ease gridlock in the credit market.

Freddie, Fannie

Freddie Mac added $2.02, or 6.5 percent, to $33.22, the steepest gain in the S&P 500, and Fannie Mae gained $1.90, or 5.5 percent, to $36.40. The Federal Reserve proposed new rules for subprime mortgages, including a ban on low-documentation loans and limits on penalties for borrowers who prepay their debts.

The Fed's biggest regulatory initiative since Chairman Ben S. Bernanke took office in February 2006 is aimed at curbing lending practices that contributed to record foreclosures. Board members unanimously voted to make lenders responsible for determining whether borrowers can afford their mortgages even after low starter rates expire.

Best Buy Co. gained 48 cents, or 0.9 percent, to $51.62. The largest U.S. consumer-electronics retailer said quarterly profit rose more than analysts estimated and raised its forecast on demand for flat-panel televisions, computers and video-game consoles.

The Russell 2000 Index, a benchmark for companies with a median market value of $580.6 million, gained 2 percent to 754.06. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.7 percent to 14,651.16. Based on its advance, the value of stocks increased by $120 billion.

Adobe Systems Inc. (ADBE US)
Best Buy Co. (BBY US)
Exelon Corp. (EXC US)
Fannie Mae (FNM US)
Freddie Mac (FRE US)
General Motors Corp. (GM US)
Goldman Sachs Group Inc. (GS US)
H&R Block Inc. (HRB US)
Hess Corp. (HES US)