U.S. Stocks Gain, Extending Global Rally, as Dollar Slips

By Rita Nazareth

Sept. 22 (Bloomberg) -- U.S. stocks rose, sending benchmark indexes to almost one-year highs, on signs the world economy is improving and analyst upgrades of companies from Macy’s Inc. to Hewlett-Packard Co. The dollar fell to a one-year low against the euro, helping drive oil, gold and copper prices higher.

JPMorgan Chase & Co. gained 4.3 percent after its earnings estimate was raised at Bank of America Corp. Macy’s jumped 5.5 percent as Citigroup Inc. advised buying the shares, while Hewlett-Packard added 1.4 percent on a Credit Suisse Group AG upgrade. Newmont Mining Corp. and Exxon Mobil Corp. rose with metal and crude prices. Caterpillar Inc. gained 3.6 percent on speculation demand for commodities will boost sales.

The Standard & Poor’s 500 Index rose 0.7 percent to 1,071.66 at 4:05 p.m. in New York. The Dow Jones Industrial Average gained 51.01 points, or 0.5 percent, to 9,829.87. The MSCI World Index rallied 1.1 percent. All three gauges closed at their highest levels since early October.

“The stock rally will keep going and any correction will be muted,” said James Dunigan, the chief investment officer at PNC Financial Services Group Inc.’s wealth-management unit, which oversees $100 billion in Philadelphia. “The appetite for riskier assets will continue to increase. There’s a lot of cash on the sidelines, corporate America has been very diligent on expenses and economic activity is improving globally.”

Growth Forecast Raised

The global advance in stocks began as the Asian Development Bank raised its economic forecast for the region on growing expansions in China, India and Indonesia. The ADB predicted Asia, excluding Japan, will grow 3.9 percent in 2009. The Group of 20 country leaders will meet in Pittsburgh on Sept. 24-25 to work on an accord to prevent a repeat of the worst crisis since the Great Depression and ensure a sustained recovery.

Speculation that government measures will help revive the economy and better-than-estimated earnings at companies from Goldman Sachs Group Inc. to Johnson & Johnson has spurred a 58 percent rebound in the S&P 500 from its 12-year low on March 9.

JPMorgan rallied 4.3 percent to $46.47 for the top gain in the Dow and the stock’s steepest advance since July 15. Bank of America analysts led by Guy Moszkowski raised their third- quarter earnings estimate to 49 cents a share from 46 cents.

The analysts named JPMorgan and Goldman Sachs Group Inc., which also had its third-quarter earnings estimate lifted, as their top picks among U.S. banks. Goldman Sachs added 1.7 percent to $185.52, its highest closing price since July 2008.

Banks Jump

Bank of America Corp. rallied 2.1 percent to $17.61 after its share-price estimate was raised to $25 from $19 by Richard Bove of Rochdale Securities LLC. Bove cited the decision to quit two federal guarantee programs.

Financial shares climbed 2.3 percent for the top gain among 10 industries in the S&P 500, sending the group to its highest level since November.

MBIA Inc., the largest bond insurer by total guarantees, had the biggest gain in the S&P 500, rising 22 percent to $8.24. Ambac Financial Group Inc. surged 14 percent to $1.88.

U.S. bank shares are set to drop because loans made for commercial real estate will sour and lenders will need to raise more capital to cover credit losses, according to Mike Mayo, an analyst at CLSA Ltd. Regional banks will perform the worst among U.S. lenders because they have the biggest exposure to loans for commercial real estate, Mayo said at a conference in Hong Kong.

Macy’s, Hewlett-Packard Jump

Macy’s jumped 5.5 percent to $18.77 after Citigroup upgraded the second-biggest U.S. department store company to “buy” from “hold,” citing expectations for increasing revenue.

Hewlett-Packard rose 1.4 percent to $47.01 after being raised to “outperform” from “neutral” at Credit Suisse, according to a report dated today.

Newmont, the biggest U.S. gold producer, rallied 1.8 percent to $45.22. Exxon Mobil, the largest U.S. oil company, added 0.4 percent to $69.83. Copper rose for a second day, while crude oil climbed above $71 a barrel in New York. Gold increased, ending a three-day decline, as the dollar’s weakness against major global currencies boosted the appeal of precious metals as an alternative investment.

Peabody Energy Corp., the largest U.S. coal producer, surged 5.3 percent to $40.22 after being raised to “buy” from “hold” at Citigroup.

U.S. Steel Corp. added 4.6 percent to $50.24 after Bank of America raised its recommendation to “neutral” from “underperform,” saying the company “should return” to profitability in 2010.

Gold Producers

Mark Johnson, whose precious-metals mutual fund topped all rivals over the past decade, is betting gold-company stocks will rise faster than the metal as mining profit margins widen.

“For every 1 percent move in gold, the stocks should gain 2 to 3 percent,” Johnson said in a telephone interview from San Antonio, where his USAA Precious Metals and Minerals Fund is based. As gold prices climb, production costs advance more slowly to yield bigger profits, he said.

Caterpillar rose 3.6 percent to $54.34, while General Electric Co. added 1.5 percent to $17.01 on speculation that demand for commodities may boost industrial activity.

“Industrials are coming back to life,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $20 billion. “That’s all reflective of an economy that’s coming out of recession and finding the sparks of a recovery.”

Fed Watch

Federal Reserve Chairman Ben S. Bernanke’s efforts to stoke an economic recovery may be undermined by the central bank’s other goal of restoring the banking system to health. The Federal Open Market Committee, at the conclusion tomorrow of a two-day meeting, will probably maintain its assessment that “tight” bank credit is impeding growth.

Economists surveyed by Bloomberg News unanimously forecast the Fed will leave its benchmark interest rate unchanged at a record low range of 0 to 0.25 percent tomorrow following a two- day meeting. Treasuries rose after the sale of a record $43 billion in two-year notes drew the strongest demand in two years amid expectations the Fed will keep rates steady.

The existing two-year note yield fell four basis points, or 0.04 percentage point, to 0.96 percent.

The Dow retreated earlier today and the S&P 500 pared gains as health-care and consumer staples companies slumped.

‘Back and Forth’

“The period of back and forth for stocks is not over,” said Alan Gayle, the Richmond, Virginia-based director of asset allocation at Ridgeworth Investments, which manages $60 billion. “The market has been swaying between confidence and concern about the future direction of the economy and corporate earnings. The economic news is generally positive, which is giving more support for pro-cyclical stocks, and less support for more defensive names.”

Health-care stocks fell 0.3 percent. Vice President Joe Biden is stepping into a bigger role in the administration’s push to revamp health care with a call today for tougher regulation of the insurance industry.

UnitedHealth Group Inc., the top U.S. insurer by sales, dropped 3.5 percent to $27.58, while WellPoint Inc. declined 2 percent to $53.70.

Lowe’s Cos. fell 4 percent to $21.07. The second-largest U.S. home-improvement retailer may incur as much as $100 million in impairment charges in the second half for operating stores. Uncertainty surrounding the charges prompted Lowe’s to leave unchanged its profit forecast for the year that ends Jan. 29 at $1.13 a share to $1.21.

AMR Slides

AMR Corp., the world’s second-largest carrier, slumped 6.5 percent to $8.44. American Airlines’s parent said it would sell 30 million shares of common stock and issue $250 million in convertible debt, potentially raising as much as $520.9 million.

The dollar slid 0.8 percent to $1.4795 per euro and depreciated to as low as $1.4821, the weakest level since Sept. 23, 2008.

The cost to protect against U.S. corporate bond defaults using a benchmark derivatives index fell for a second day, dropping to the lowest level in more than 16 months.

Stocks offer greater value than bonds and are poised to “catch up” with a rally in corporate debt, according to Rod Smyth, chief investment strategist at Riverfront Investment Group LLC.

The difference in yield between corporates and 10-year Treasury notes has narrowed more quickly than the S&P 500 has risen since March. Since December, the yield gap has fallen to 2.9 percentage points from a peak of 6.2 points, according to data compiled by Bloomberg. This spread is near its lowest level since January 2008, when the S&P 500 was about 22 percent higher.

“‘Animal spirits’ are returning to Wall Street even if they are still suppressed on Main Street,” the Riverfront report said. Spreads have narrowed so much that stocks have more room to rise than bonds, especially as earnings increase, it added.