U.S. stocks gain, extending global rally, as dollar slips

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Published: September 22,2009

(Bloomberg) — U.S. stocks rose, extending a global advance in equities, 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, while oil, gold, copper and Treasuries gained.

Bank of America Corp. climbed 2.4 percent after its share- price estimate was raised by Richard Bove of Rochdale Securities LLC. Macy’s jumped 6.5 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 ConocoPhillips advanced as commodity prices climbed.

“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.”

The Standard & Poor’s 500 Index rose 0.6 percent to 1,070.57 at 11:15 a.m. in New York. The Dow Jones Industrial Average gained 30.15, or 0.3 percent, to 9,809.01. Europe’s benchmark index added 0.7 percent, while Asia’s increased 1 percent.

Growth Forecast Raised

The global advance in stocks began as the Asian Development Bank raised its economic growth forecast for the region on strengthening expansions in China, India and Indonesia, predicting 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.

Bank of America had the biggest gain in the Dow, rising 2.4 percent to $17.66. The biggest U.S. lender by assets had its price target raised to $25 a share from $19 by Bove, who cited the decision to quit two federal guarantee programs.

Goldman Sachs Group Inc. added 0.5 percent to $183.27. The bank’s third-quarter earnings per share estimate was raised 28 percent to $4.02 by FBR Capital Markets analysts, who said they expect the firm to continue achieving high returns on assets. The analysts also boosted full-year forecasts for 2009 and 2010.

Macy’s, Hewlett-Packard

Macy’s jumped 6.5 percent to $18.94 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 3.3 percent to $45.89. ConocoPhillips, the third-largest U.S. oil company, added 1.2 percent to $46.72. Copper rose for a second day, while crude oil climbed above $70 a barrel in New York. Gold increased, ending a three-day decline, as the dollar weakened against major global currencies, boosting the appeal of precious metals.

U.S. Steel Corp. added 3.6 percent to $49.73 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 bullion as miners’ profit margins widen.

“For every 1 percent move in gold, the stocks should gain 2 to 3 percent,” Johnson, 59, 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. American International Group Inc. had the biggest gain in the S&P 500, surging 8.6 percent to $52.56. The insurer bailed out by the U.S. extended its rally for a second day after Representative Edolphus Towns, chairman of the House Oversight and Government Reform Committee, said he’d give “serious consideration” to a plan to ease the terms of the company’s $182.5 billion bailout.

Fed Meetings

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 in New York trading, with the 10-year note yield falling three basis points, or 0.03 percentage point, to 3.45 percent.

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 hosted by his company in Hong Kong. The global economic slowdown may still cause another corporate failure in the vein of Enron Corp. or WorldCom Inc., he said.

Dell, Lowe’s Drop

Dell Inc. declined 1.7 percent to $15.74. The second- biggest maker of personal computers was cut to “neutral” from “outperform” by Credit Suisse, which said the company may face difficulty in integrating Perot Systems Corp. Dell yesterday agreed to pay $3.9 billion for Perot to expand into computer services.

Lowe’s Cos. fell 1.3 percent to $21.65. 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 Corp., the world’s second-largest carrier, slumped 6.8 percent to $8.42. 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.

Tice Predicts Plunge

The biggest rally in U.S. stocks since the Great Depression will end within six months because the economy isn’t improving fast enough to justify prices, said David Tice, Federated Investors Inc.’s chief portfolio strategist for bear markets.

“The economy is in really, really bad shape,” Tice said in an interview with Bloomberg Television. “So many people are trying to be optimistic. We’ve gone from oversold to overbought.”

Tice said the S&P 500 will fall below 400 points within 18 months, a 62 percent plunge from yesterday’s close, and he feels “bloodied, but unbowed” after the index rallied as much as 58 percent from a 12-year low on March 9.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against the yen, euro, pound, Canadian dollar, Swedish krona and Swiss franc, snapped a two- day advance, falling as much as 1 percent.

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