Tuesday 11 March 2008

U.S. Stocks Rally on Fed's Plan to Lend Up to $200 Billion

U.S. stocks rallied the most in six weeks after the Federal Reserve said it will pump $200 billion into the financial system to shore up banks battered by mortgage-related losses.

Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. led financial shares to their biggest advance since Jan. 23 on expectations the Fed's move will spur lending to companies and homeowners. Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. gained as gasoline and metal prices climbed. European shares rose for the first time in four days and Asian stocks also climbed.

The Standard & Poor's 500 Index added 20.59 points, or 1.6 percent, to 1,293.96 at 11:24 a.m. in New York. The Dow Jones Industrial Average rallied 202.63, or 1.7 percent, to 11,942.78. The Nasdaq Composite Index increased 41.78, or 1.9 percent, to 2,211.12. Seven stocks gained for every one that fell on the New York Stock Exchange.

``What the move really did is begin to provide some liquidity back into credit markets,'' said Kevin Cronin, head of investments at Putnam Investments in Boston, which manages $185 billion. ``It's provided some oil to the engine on the credit side, that's one of the things the equity market has recognized.''

Nine of 10 industry groups in the S&P 500 gained as the benchmark for U.S. equities rose for the first time in four days and rebounded from the lowest level since August 2006. Treasuries plunged, pushing the two-year note's yield up the most since May 2004, as investors dumped holdings of government debt and bought stocks. The dollar rose the most in six months against the yen and rebounded from a record low versus the euro.

Fed's Plan

The Fed plans to make the loans in exchange for private mortgage-backed securities and other debt that has plunged in value as homeowners defaulted on their payments. Banks around the world have posted $188 billion in writedowns and credit losses stemming from the collapse of the subprime mortgage market. The S&P 500 Financials Index had lost 20 percent this year through yesterday.

Citigroup, the largest U.S. bank, rallied $1.26 to $20.95. Bank of America, the second-biggest, climbed $2.03 to $37.34. JPMorgan, the No. 3, increased $2.17 to $38.65.

Financial shares in the S&P 500 gained 3.5 percent as a group, rebounding from the lowest level since May 2003.

Fannie Mae, the biggest mortgage-finance company, jumped $1.13, or 5.7 percent, to $20.94. Freddie Mac, the second- largest, soared $1.29, or 7.4 percent, to $18.68. Countrywide Financial Corp., the biggest U.S. mortgage lender, climbed 28 cents to $4.64. Washington Mutual Inc., the largest U.S. savings and loan, added 8.9 percent to $10.93. Bear Stearns Cos. gained 8.6 percent to $67.65 and Lehman Brothers Holdings Inc. rose 8.7 percent to $46.70.

`Obviously Good News'

``The Fed injecting liquidity, helping out the banking sector, is obviously good news,'' David Spika, who manages $7 billion as investment strategist at Westwood Holdings Group in Dallas, said in an interview with Bloomberg Television. ``From a valuation perspective, this is a good buying opportunity.''

Freeport-McMoRan added $4.73, or 5 percent, to $98.70. Copper rose for the first time in four days in London because of a strike at a mine in Papua New Guinea.

Producers of raw materials in the S&P 500 added 3.9 percent as a group, the biggest gain since November.

Exxon gained $2.19, or 2.7 percent, to $84.65. Gasoline pump prices in the U.S. rose to an all-time high $3.227 a gallon and may reach $4 before summer because of record crude-oil prices, AAA said.

Energy shares rallied 2.2 percent as a group.

Weyerhaeuser, Texas Instruments

Weyerhaeuser Co., the largest U.S. lumber producer, climbed $3.20 to $62.19 after UBS AG raised its recommendation on the stock to ``buy'' from ``neutral,'' saying risk from the housing slump ``is starting to be priced in as market expectations have become more realistic.''

Texas Instruments Inc. lost $1 to $28.65. The second- biggest maker of chips that run mobile phones cut its sales and profit forecasts because of slowing handset demand.

Health-care companies lost 0.3 percent, the only decline among 10 industry groups in the S&P 500. WellPoint Inc. dropped $16, or 24 percent, to $49.92 after the second-largest U.S. health insurer cut its per-share profit prediction for 2008 due to unexpectedly high medical costs. WellPoint also said weakness in the U.S. economy has limited enrollment gains.

The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast, according to a Bloomberg News monthly survey. The world's largest economy will grow at an annual rate of 0.3 percent from January through June, a half point less than projected in February, according to the median estimate of 62 economists polled from March 3 to March 10.