U.S. Stocks Gain, Led by Financial Firms; Merck Shares Tumble

By Michael Patterson


March 31 (Bloomberg) -- U.S. stocks rose for the first time in four days as lower oil prices, improved business activity and a Treasury plan to help prevent financial crises boosted expectations the economy will weather growing credit losses.

Citigroup Inc., Wachovia Corp. and JPMorgan Chase & Co. helped the Standard & Poor's 500 Index pare its biggest quarterly decline since 2002. General Electric Co. and FedEx Corp. rallied after the National Association of Purchasing Management-Chicago's business index increased more than forecast. Merck & Co. fell the most since 2004, limiting the market's advance, after doctors recommended not using two of its cholesterol pills in favor of low-cost alternatives.

Changes in financial regulation ``really could be good for the markets,'' Peter Sorrentino, a senior portfolio manager at Huntington Asset Management, which oversees $15 billion in Cincinnati, said in an interview on Bloomberg Television. ``It could restore confidence and it could bring investors back into the marketplace.''

The S&P 500 climbed 7.48 points, or 0.6 percent, to 1,322.7, reducing its monthly loss to 0.6 percent. The Dow Jones Industrial Average increased 46.49, or 0.4 percent, to 12,262.89. The Nasdaq Composite Index added 17.92, or 0.8 percent, to 2,279.1. Almost two stocks rose for every one that fell on the New York Stock Exchange.

Quarterly Tumble

The S&P 500 pared its yearly decline to less than 10 percent as the Chicago purchasers' group report showed exports spurred new orders, easing concern that business investment would dry up as the economy slows. Treasury Secretary Henry Paulson said the Federal Reserve, which engineered JPMorgan's takeover of Bear Stearns Cos. this month and became lender of last resort to the biggest securities firms, should expand its oversight of financial services beyond banks.

Retailers rallied 1.4 percent as a group, led by Macy's Inc., after crude oil fell more than $4 a barrel in New York.

The S&P 500 still posted its worst quarter since September 2002, when the fallout from telephone company WorldCom Inc.'s bankruptcy sent the index down almost 18 percent. The benchmark for U.S. equities has declined for five straight months, the longest losing streak since 1990.

The S&P 500 Financials Index gained 0.9 percent today, paring its decline this year to less than 15 percent, and contributed the most to the broader index's advance. Wachovia, the fourth-largest U.S. bank, gained $1.01 to $27. JPMorgan, the third-biggest, rose 24 cents to $42.95.

Paulson's `Blueprint'

Paulson's 218-page ``Blueprint for Regulatory Reform,'' commissioned two months before credit markets seized up in August, said more rules aren't the answer to the current period of turmoil. The former chairman of Goldman Sachs Group Inc. said the structure of regulating banks, securities firms and insurance companies is outmoded, and he acknowledged that the changes will take ``many years to complete'' and most will require legislative approval.

The world's biggest financial institutions have reported more than $200 billion in asset writedowns and credit losses stemming from the collapse of the U.S. subprime-mortgage market.

Citigroup added 59 cents to $21.42. The biggest U.S. lender by assets said it reorganized its flagging consumer division as Chief Executive Officer Vikram Pandit tries to reverse a profit slide at the company's biggest revenue generator.

Morgan Stanley

Morgan Stanley climbed after Sanford C. Bernstein & Co. analyst Brad Hintz advised clients to buy shares of the second- biggest U.S. securities firm because it can weather credit- market losses better than its rivals.

Morgan Stanley and Merrill Lynch & Co. have the ``strongest liquidity position'' among the largest securities firms, Hintz wrote in a research note. Morgan Stanley shares gained 96 cents to $45.70. Merrill added 81 cents to $40.74.

Financial shares may pare their gain tomorrow. Lehman Brothers Holdings Inc. said after the official close of U.S. exchanges that it's selling at least $3 billion of convertible preferred shares to U.S. institutions to reassure investors it has ample access to capital. Lehman, which slipped 0.6 percent in regular trading, extended its decline by $1.73 to $35.91 in after-hours trading as of 4:50 p.m. in New York.

GE, the second-biggest U.S. company by market value, gained 40 cents to $37.01. FedEx, the second-largest U.S. package- shipping company, rose $1.40 to $92.67. Deere & Co., the largest maker of farm equipment, increased 50 cents to $80.44.

The Chicago purchasers' group said its business index rose to 48.2 in March from a six-year low of 44.5 a month earlier. Figures lower than 50 signal contraction. The median forecast of economists surveyed by Bloomberg News projected a gain to 46.

``The news still isn't going to be tremendous, but it's going to be, in a lot of cases, better than people expected,'' said Eric Thorne, an investment adviser at Bryn Mawr Trust Co., which oversees about $2.6 billion in Bryn Mawr, Pennsylvania. ``We like the more economically sensitive parts of the market.''

Micron

Micron Technology Inc. led semiconductor companies in the S&P 500 to their biggest rally in a week. Citigroup analyst Glen Yeung wrote in a report that the average selling prices for so- called dynamic random access memory chips rose 3.1 percent in February from a month earlier, the first increase since August. Micron, the largest U.S. maker of memory chips, rose 51 cents, or 9.3 percent, to $5.97 for the biggest gain in the S&P 500.

SanDisk Corp., the largest maker of digital-camera memory cards, added $1.31 to $22.57. Intel Corp., the world's biggest chipmaker, increased 39 cents to $21.18.

Crude oil fell 3.8 percent to $101.58 a barrel in New York on signs that a U.S. report will show inventories rose for the 11th time in 12 weeks, helping boost shares of automakers and retailers.

GM, Retailers Rally

General Motors Corp., the biggest U.S. carmaker, gained 38 cents to $19.05. Automakers, which release March results tomorrow, may report sales in the U.S. declined for a fifth straight month, according to analysts surveyed by Bloomberg.

Macy's climbed $1.09 to $23.06. Wal-Mart Stores Inc., the world's largest retailer, advanced 56 cents to $52.68. Target Corp., the second-biggest U.S. discount retailer, increased 99 cents to $50.68 today.

AT&T Inc. gained 64 cents to $38.30, the highest level since Feb. 13. The biggest U.S. phone company won a $1.6 billion contract to provide communications services to Royal Dutch Shell Plc, its largest deal with a European company.

Fortune Brands, Rowan

Fortune Brands Inc., the holding company for Jim Beam bourbon, jumped $5.64 to $69.50 on a plan to repurchase as many as 15 million shares after losing the bidding for the Absolut vodka brand.

Rowan Cos. advanced $3.30, or 8.7 percent, to $41.18 for the largest gain since July 2002. The U.S. oil and natural-gas driller with a fleet of 21 rigs said it will pursue monetization of its manufacturing unit LeTourneau Technologies Inc. Options include an initial public offering, Rowan said.

Merck declined $6.56, or 15 percent, to $37.95. Schering- Plough Corp. sank $5.06, or 26 percent, to $14.41 for the biggest drop since Bloomberg began tracking price data in July 1980.

Heart doctors at the American College of Cardiology meeting in Chicago said physicians should limit prescriptions for the companies' jointly sold cholesterol pills Vytorin and Zetia.

The drugmakers sold $5.2 billion of Vytorin and Zetia last year. The study showing the drugs work no better than a generic medicine at one-fifth the price may cost the two companies $1.3 billion in sales this year and $1 billion next year, according to Goldman Sachs analyst Jim Kelly.

`Real Risk'

S&P 500 members may report a 9.9 percent average drop in first-quarter profit, according to analysts' estimates compiled by Bloomberg. Earnings at health-care companies had been expected to rise 1.3 percent during the first three months of 2008, according to the March 28 survey.

``The real risk in the market going forward is earnings,'' Craig Hester, who oversees about $1.5 billion as president and chief investment officer of Hester Capital Management, said in an interview on Bloomberg Television from Austin, Texas. ``I'm sure we'll see a lot of revisions downward.''

The MSCI World Index of developed nations dropped 9.5 percent this year for the biggest quarterly retreat since September 2002.

The S&P 500 has outperformed stock benchmarks in 15 of the world's 20 biggest equity markets this year, including Japan's Topix Index and the U.K.'s FTSE 100 Index, according to data compiled by Bloomberg. Taiwan's Taiex index was the only winner among the biggest markets' indexes in the first quarter, rising 0.8 percent. China's CSI 300 Index, which surged 162 percent last year, has retreated 29 percent in 2008 for the worst performance.

Treasuries rose today, rounding out their best annual start since 1995. The dollar traded within a cent of a record low against the euro, completing its biggest quarterly loss against the European currency in almost four years.